1. Agenda
I.
Introduction of Speaker
II.
Speaker:
David Olander, Chief Tax Counsel,
Ways and Means Committee
I.
Overview of the Year Ahead
I.
II.
2014/2015 Budget Process
IV.
Slide 1
Financial Policy
III.
II.
Tax Policy
2014 Election Outlook
Conclusion

2. Tax Policy
February 28, 2014
Slide 2

3. Tax Reform
Highlights
 House Ways and Means Committee Chairman Dave
Camp (R-Mich.) unveils comprehensive tax reform
discussion draft
 Sen. Ron Wyden (D-Ore.) assumes Chairmanship of
Senate Finance Committee
 Obama Administration to release FY 2015 budget
request to Congress
Slide 3

4. Tax Reform
House
 Camp comprehensive tax reform discussion draft: ―Tax
Reform Act of 2014‖
– “Make the tax code simpler and fairer for families and employers.”
 979-page draft reduces the size of the federal income tax code
by 25%
 Lowers the corporate and individual tax rates
 Reforms international tax rules
– “Strengthen the economy so there are more jobs and bigger
paychecks for American families.”
 $3.4 trillion in additional economic growth
 1.8 million new jobs
 $1,300 per year more for the average American family
Slide 4

5. Tax Reform
House
 Tax Reform Act of 2014 – Individual
– Reduces today’s seven brackets to two: 10% and 25%
 New 10% surtax on certain income above $450,000/$400,000
 Manufacturing income exempt
– Increases standard deduction
– Caps mortgage interest deduction at $500,000 for new debt
– Repeals Alternative Minimum Tax (AMT)
– Taxes investment income as ordinary income with 40% exclusion
– Simplifies the rules governing S corporations
– Taxes part of carried interest as ordinary income
– Maintains current law on the estate tax
Slide 5

6. Tax Reform
House
 Tax Reform Act of 2014 – Corporate
– Reduces corporate rate to 25% over five years (by 2% points/year)
– Provides an improved, permanent R&D tax credit (repeals most
other business credits)
– Repeals the corporate AMT
– Modifies depreciation rules (property placed in service starting in
2017)
– Repeals LIFO with transition rules
– Modernizes international tax rules
 95% dividends received deduction (DRD)
 Includes safeguards against base erosion (revised Option C)
 Ends “lock-out” effect on foreign earnings

Slide 6
Read more at tax.house.gov

7. Tax Reform
Senate
 Wyden tax reform credentials
– Wyden/Coats “Bipartisan Tax Fairness and Simplification Act of 2011”
 Reduces individual tax brackets to three: 15%, 25%, and 35%
 Creates new 35% exclusion for dividend and long-term capital
gains
 Triples standard deduction
 Retains mortgage interest deduction, charitable, child credits
 Expands tax-free savings opportunities
 Reduces corporate tax rate to 24%
 Allows one-time, low-tax repatriation of foreign earnings
 Ends deferral on foreign income
 Limits value of corporate interest deduction
Slide 7

8. Tax Reform
Administration
 Obama Administration State of the Union and FY 2015
Budget
– State of the Union broke no new ground on tax policy
– Economic agenda focused on job creation and reducing income
inequality
– Reiterated proposal for “business” tax reform that uses one-time
revenue to fund infrastructure spending
– FY 2015 budget expected on March 4; tax proposals in “Green Book”
– May include new revenue raising tax proposals to address perceived
international tax avoidance
Slide 8

9. Tax Reform
Outlook
 Highly unlikely to pass this year
 Reform proposals may be recycled for future reform
efforts or as offsets
Slide 9

10. Other Tax Legislation
Tax Extenders
 Senate Majority Leader Harry Reid (D-Nev.): failed
effort in late 2013
 Wyden: tax extenders ―bridge‖ to tax reform
 Camp: tax extenders to be addressed in context of tax
reform
 Legislative action probable in late 2014
Slide 10

11. Other Tax Legislation
2014
 No year-end must pass tax legislation
 Extenders
 State tax bills
 Highway Trust Fund
 Affordable Care Act
 Pension and retirement offsets
Slide 11

12. Financial Policy
February 28, 2014
Slide 12

13. Financial Policy
 Legislative Issues
 Regulatory Issues
 New Financial Considerations in Tax
Reform Proposal
Slide 13

14. Legislative
Issues
S. 888/H.R. 634 – the Business Risk Mitigation and Price
Stabilization Act
 The bills (S.888/H.R. 634) provide a clear exemption from margin
requirements for derivatives end-users.
 Current status in the legislative process – passed the House,
awaiting Senate action.
Slide 14

15. Legislative
Issues
H.R. 677 – the Inter-affiliate Swap Clarification Act
 The bill would exempt internal swaps between two affiliates from
clearing and margin requirements, as well as ensure that endusers will not be penalized for using CTUs.
 The bill is awaiting action on the House floor, has passed through
the committee process.
 Negotiations with House Financial Services Committee Ranking
Member Waters.
Slide 15

16. Regulatory
Issues
Update on Money Market Mutual Fund (MMMF) Reform
 Federal regulators are considering additional reforms to MMMFs,
beyond those enacted after the financial crisis.
 Since MMMFs are critical tools for American businesses for shortterm financing and investing, it is vital that these reforms do not
compromise their usefulness.
 Expectations on when we may see a final rule remain up in the air.
Slide 16

17. Regulatory
Issues
Update on the Volcker Rule
 The Dodd-Frank Act directed five federal regulatory agencies —
the Federal Reserve, the Office of the Comptroller of the Currency,
the Federal Deposit Insurance Corporation, the Securities and
Exchange Commission, and the Commodity Futures Trading
Commission— to implement the Volcker Rule
 A final rule (over 900 pages long) was released by the agencies
on December 10, 2013
 Many concerns remain – within both the government and business
community
Slide 17

18. Tax Reform
Proposal
Financial Provisions in Tax Reform Proposal
 ―Lending tax‖ already upsetting the financial services industry
 Tax reform proposal would modify the treatment of certain
derivatives
Slide 18

19. The FY2014-2015
Budget ―Process‖
Are we there yet?
Slide 19

20. Budget Process

Government Shutdown – October 1- 17, 2013

Agreement to Reopen Government



Continuing Resolution until Jan. 15, 2013 (Budget deadline by
Dec. 13, 2013)
Debt Ceiling extension until February 7, 2014
2 Year Budget Agreement H.J. Res. 59

Reached – Dec.10, 2013

Omnibus Appropriations Act – January 13, 2014

Debt Ceiling bill – February12, 2014


Slide 20
Clean, no policy quid pro quo’s
Suspended Debt Ceiling until March 15, 2015

21. FY2014 Budget
Agreement
Slide 21

22. FY2014 Budget
Agreement
Slide 22

23. FY2014 Budget
Agreement
•
According to the CBO’s latest projection: the budget deficit will fall
to 3.0% of GDP in 2014 (the average rate since the 1970s) and 2.6%
in 2015.
•
However, deficits return to 4% of GDP by 2024, at which time the publicly
held federal debt will reach 79% of GDP, up from the current 74%.
•
While the CBO projections average a 3% GDP growth rate through 2017,
continued low labor force participation rates will ratchet back growth to
an average 2.2% from 2018 to 2024, causing a drag on revenue growth,
which coupled with the expected increase in entitlement spending and
interest expense results in the rise in deficits.
•
“Most of the increase in projected deficits results from lower projections
for the growth of real GDP and for inflation, which have reduced
projected revenues between 2014 and 2023 by $1.4 trillion. Legislation
enacted since May has lowered projected deficits during that period by
a total of $0.4 trillion (including debt-service costs).” CBO, THE BUDGET AND
ECONOMIC OUTLOOK: 2014 TO 2024, FEBRUARY 2014
•
Slide 23
Therefore, the current CBO projections show a net increase in their 10
year federal deficit forecast of $1 trillion over previous forecasts.

24. FY2014 Budget
Agreement
FY2014 Budget Agreement
Slide 24

25. FY2014 Omnibus
Appropriations Bill
•
$1.1T Omnibus Appropriations bill for FY 2014 ( an increase of $45B
had the original sequester cuts remained). Includes a defense
supplemental beyond the budgeted $1.04T.
•
•
More for Head Start
•
$21 B more for DoD ($30B less than President’s request – OCO
funds up $6 B, to be used for general budget as US leaves
Afghanistan
•
EPA can still regulate Carbon Emissions
•
No abortion funding
•
Significant cuts in IRS funding
•
Cuts in CFTC and SEC funding ($100 M and $324 M respectively
from Admin)
•
Slide 25
ACA largely intact (except for $1 B cut in Public Health Fund)
Medicare provider cuts extended 2 years (@ $24 B)

26. FY2014 Omnibus
Appropriations Bill
Figures are in millions of dollars of new budget authority.
Slide 26

27. FY2015 Appropriations
Process
•
With the Budget Agreement covering 2 years, Congress can
revert to regular order for FY2015.
•
•
House and Senate Budget cap of $1.014T, worked out in the budget
deal
•
•
Requires that Congress pass 12 Agency Appropriations bills based on
the:
Deadline September 30, 2014, just before the election
President’s Budget expected March 4, 2014
•
•
Drops last year proposal for “chained CPI”
•
Focuses new expenditures on job training and early education
•
Slide 27
Abandons attempt for Grand Bargain with Republicans in favor of safe
election year budget to shore up Democrat base
Probably DOA, but sets the framework for Senate Democrats
negotiating position

28. 2014 Election
Outlook
A look at how elections can impact your business.
Slide 28

29. Election Overview

The 2014 election cycle is already well underway.
Both Texas and Illinois will hold primaries in early
March.

While it is unlikely that the House of Representatives
will switch from Republican to Democrat control, the
Senate is very much in play.

The outcome of federal and state elections will
have a direct impact on senior financial executives
and their companies.
Slide 29

30. House of
Representatives
 It is almost certain that the GOP will not lose seats in
the House of Representatives. Historical data shows
that the party that controls the White House typically
loses seats in the House of Representatives,
especially during the 6th year of an 8 year
presidency.
 In keeping the House, the GOP will likely keep the
focus in the next congress on:
– Affordable Care Act
– Tax reform
– Overreaching regulatory bodies such as the EPA
Slide 30

31. House of
Representatives
Slide 31

32. Senate
•
•
The GOP has had opportunities over the last two
election cycles to win the Senate, but were unable
to do so based on flawed candidates.
•
Slide 32
The GOP has a real shot at taking the Senate from
the Democrats in 2014. That being said, there are a
number of factors in play that will either make or
break the GOP.
As the polling shows now, the GOP is ahead in 4
states currently held be Dems (MT, SD, AR, and WV).
There are three ―toss up‖ seats: AK, LA, and NC.
The GOP would need to win 2 of the 3.

33. Senate
•
•
If the GOP does win in 2014, there are two
directions the party could go. It could work with
President Obama on his last two years to achieve
a grand bargain on many key issues that remain
outstanding.
•
Slide 33
Victory could be short lived, however, as the GOP
has many seats to defend in 2016 (including
many that were part of the wave election of
2010.)
It could also oppose any Obama initiatives, thus
assuring his last two years as a lame duck.

34. Senate
FY2014 Budget Agreement
Slide 34

35. Governorships
•
•
Many up for reelection include a number from
the class of 2010. Democrats will paint them as
part of the ―wave‖ while the GOP will portray
them as being far removed from Washington and
actually accomplishing something.
•
Slide 35
There are 22 Republican governorships up in
2014, compared to just 14 for Democrats.
President Obama desperately needs to win
governorships as a sign of progress on his
agenda – including raising the minimum wage
and an increase in education spending.

36. Governorships
Slide 36

37. What This Means
for Executives
•
•
If the GOP is able to take back the Senate, there
will be movement in the legislative branch that
hasn’t existed since 2010 when Democrats last
controlled both chambers.
•
Slide 37
Many of the key issues that were mentioned on
the call today need to move through the
legislative process in order to avoid continued
uncertainty for senior financial executives.
That being said, President Obama is in office until
2016. Both sides are going to need to work
together in order to get anything accomplished.

38. Government Affairs
Team
Who We Are
Robert Kramer
Vice President
Government Affairs
rkramer@financialexecutives.org
Karen Bachman Lapsevic
Director
Government Affairs
klapsevic@financialexecutives.org
Learn More:
Committee on Government Business
Learn More:
Committee on Taxation
Committee on Benefits Finance
Kelli McMorrow
Sr. Manager
Government Affairs
kmcmorrow@financialexecutives.org
Tyler Roberts
Manager
Government Affairs
troberts@financialexecutives.org
Learn More:
Committee on Corporate Treasury
Learn More:
Private Company Roundtable
Private Company Policy
Slide 38

39. Questions?
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Slide 39