Good to be contracting? – POLITICO
STILL TYING IN KNOTS: It’s not exactly rare these days for President Donald Trump to take Amazon to task.
So it might come as a surprise that the Tax Cuts and Jobs Act, H.R. 1 (115), might actually give a tax boost to the online shopping giant’s package deliveries that won’t be available to employees of the U.S. Postal Service — the same USPS that Trump believes is taken advantage of by Amazon.
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That’s because the workers doing the delivering for Amazon will be independent contractors, and thus eligible for the tax law’s 20 percent deduction on pass-through income, Pro Tax’s Brian Faler reports. That disparity also helps illustrate why the pass-through provision is one of the more hotly debated aspects of TCJA, with a policy meant to spur businesses into expanding also leading to people basically doing the same jobs but not necessarily getting the same tax benefits.
It’s not a surprise that there would be tax advantages to being an independent contractor under the new tax system — that was pretty well discussed as TCJA was being debated. And while a 20 percent tax deduction can be a powerful incentive, it’s also not as easy to switch over as some workers might think, nor necessarily a slam dunk decision for some employees. (Health insurance can be a pretty persuasive reason to leave things as is.)
“All of that could be a formula for confusion and unhappiness, while also putting a spotlight on the arcane legal distinctions between employers and contractors,” Brian writes, also noting that there are an extensive number of rules governing that distinction that are “focused on things like how much control an employer has over a worker — like whether she can tell him where to be and when — and businesses can face state and federal penalties for misclassifying workers.”
At the same time, it’s an issue with the tax law that might only be growing. Around one in six workers had “alternative” employment situations in 2015, up from one in 10 a decade earlier. And some advocates for independent contractors getting the tax deduction argue that it’s too simplistic to just compare how similar a contractor’s job is to that of a regular salaried employee, because of the benefits and legal protections that come with that more traditional position.
Keep in mind: The White House budget office announced last week that it was examining some of the guidance surrounding the pass-through deduction, so we should be getting more insight soon into how the provision will work.
HELLO, FRIDAY. This one’s still in time for summer vacation, even: Today marks 72 years since the opening of the first theme park in the U.S. — Santa Claus Land in, yes, Santa Claus, Ind. (The park is now called Holiday Land and Splashin’ Safari, and, no, that title is not without controversy. Knott’s Berry Farm in California has also been called America’s first theme park.)
Twitter: @berniebecker3, @tobyeckert, @brianfaler, @aaronelorenzo, @POLITICOPro and @Morning_Tax.
NOT A GLOWING ENDORSEMENT: The Opportunity Zone program initiated in the tax law has some important patrons, like Sen. Tim Scott (R-S.C.) — but also some real skeptics that the plan to forego collecting tax revenue from investors in exchange for their investment in areas of need will end up being a good deal for the government. The latest case comes from Steve Rosenthal of the Urban-Brookings Tax Policy Center, who argues that the revenue loss from Opportunity Zones could be more extensive than the Joint Committee on Taxation is projecting — in part because the program is more expansive than others already on the books with similar goals. “The fundamental problem with Opportunity Zones is the disconnect between the size of the potential tax costs, which are uncapped, and the social benefits from the investments, which will be hard to measure,” Rosenthal writes, noting that investors will likely use the tax incentive for already planned projects and that investments could easily go to areas that aren’t fully in need.
NOT THE STOCKS! Silicon Valley might have to absorb bigger tax bills on one of its go-to compensation moves, offering stock instead of cash, after a new federal court ruling, Bloomberg reports. Because of the ruling in a case involving Altera, a subsidiary of Intel, companies won’t be able to fully deduct the stock payments from their tax bill, and instead will have to share the costs between the U.S. parent and related foreign entities. From the companies’ perspective, that amounts to basically wasting some of the deduction on subsidiaries in no- or low-tax countries. For Facebook at least, that could push the company’s effective tax rate up to 30 percent for the current quarter. Tax lawyers say the deduction will be essentially cut in half for companies going forward. But using stock as compensation is so ingrained in Silicon Valley, it’s unlikely that tech titans will move away from that strategy.
ANOTHER HIT FOR NEWSPAPERS: The American newspaper industry, which is already facing a host of challenges, is about to get a new one from Trump’s Commerce Department — new tariffs on Canadian products. The Associated Press reports that a tax on paper could rise to close to 17 percent, with a tax on newsprint possibly getting to almost 10 percent. “The tariffs are a response to a complaint from a hedge fund-owned paper producer in Washington state, which argues that its Canadian competitors are taking advantage of government subsidies to sell their product at unfairly low prices. Still, Commerce decided to spare two Canadian producers from the antidumping charges.” The International Trade Commission could make changes to the levies or even scrap them altogether when it weighs in next month.
The tariffs abound: Keep in mind, that’s far from the only new tariff development in just these last couple days. Trump is now considering hitting around $200 billion worth of Chinese goods with a 25 percent tariff instead of 10 percent, as Pro Trade’s Doug Palmer reported.
POINT, COUNTERPOINT: Private debt collectors currently being used by the IRS could be putting taxpayer information at risk, Treasury’s inspector general for tax administration said in a report released Thursday. The four companies that the IRS is using to help collect tax debts are supposed to conduct monthly checks to ensure their systems aren’t vulnerable. But as Pro Tax’s Aaron Lorenzo reports, one of the four companies wasn’t checking for system failures at all, and none of the four were reporting identified vulnerabilities.