At Around the Tax World, you can find out all about what’s going on in the wonderful, worldwide world of tax. Every month, we’ll feature a few mini-articles on what’s been going on in the world when it comes to tax, and fully available for viewing even if you don’t have a subscription.
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In The Headlines
- Biden rushes to roll out his chip manufacturing program—will Trump reverse it? President Joe Biden recently finalized an agreement to award Taiwan Semiconductor Manufacturing Company (TSMC) up to $6.6 billion in grants to increase semiconductor production in the U.S. The funding will support the launch of three new factories in Phoenix, which the Biden administration announced as the largest foreign direct investment for a new factory project in U.S. history. As Biden’s term comes to an end, the question remains whether president-elect Donald Trump will keep the Chips and Science Act in place. Many experts say that in spite of Trump’s campaign promise to overturn many Democrat-backed measures, the Chips Act is more likely to get tweaked than repealed entirely given the program’s progress in weaning the U.S. off of reliance on foreign semiconductor producers.
- Disney vs. Warren Buffett: Who’s right about the video streaming business? In a 2023 interview, billionaire and famed investor Buffett labeled streaming as “not really a very good business,” noting that Disney, NBCUniversal, Paramount, and Warner Bros. Discovery all underperformed the S&P 500 since the start of 2022 as the companies invested billions into launching their streaming services. Disney, on the other hand, has been doubling-down on streaming and is starting to see a payoff. Compared to the previous year when Disney’s entertainment platforms lost $2.5 billion, the company’s combined streaming businesses reported $321 million in operating income this year. For fiscal year 2025, Disney is expecting enough revenue to offset the losses it’s seeing from linear TV.
- Restaurants with celebrity CEOs engage in more risk-taking, according to a new study. The Penn State School of Hospitality Management discovered a trend—restaurants seem to take more financial and investment-related risks when they have hired a well-known name from outside the company or are actively franchising. Franchising typically helps reduce risk for a restaurant by giving it multiple income streams. Celebrity CEOs tended to use the buffer this provides to take more chances in growing and expanding the business. Who counts as a “celebrity CEO” in this case? Researchers included anyone who brings a high level of media attention to the restaurant. The study concluded that restaurants looking to keep risk low may want to promote CEOs from within the company.
What's New In The Tax World?
Saying hello to the next Trump administration may mean goodbye to Biden’s EV tax credit. Unnamed sources have indicated that president-elect Donald Trump may eliminate the $7,500 tax credit for new electric vehicles. The original version of this credit dates all the way back to the Energy Policy Act of 2005 under former Republican president George W. Bush. While on the campaign trail, Trump spoke about ending Biden’s “EV mandate,” although he did not identify which policies would be on the chopping block. The same sources say that certain clean-energy policies have gained too much popularity to cut without hurting a number of state budgets. The EV tax credit may get the ax because it would be easier to eliminate and the resulting increased tax revenue could be used to pay for other initiatives. Top of the list is likely a restoration of the expiring tax cuts from Trump’s 2017 Tax Cuts and Jobs Act.
In another campaign promise, Trump vowed to increase U.S. oil production and scale back on subsidies for wind and solar power and the mass production of hydrogen. Already taking steps in this direction, Trump recently instituted an energy-policy transition team led by Republican North Dakota Governor Doug Burgum and Harold Hamm, founder of the petroleum and natural gas company Continental Resources. This team expects that the new Republican-controlled Congress will use a tactic called “reconciliation” to pass a new tax bill.
A strong constituency from the automotive industry is advocating to keep the EV tax credit in place. The Alliance for Automotive Innovation submitted a letter to Congress, urging them to keep the U.S. competitive in the global market. One outlier that has spoken in support of repealing the credit is Tesla, headed by CEO Elon Musk, one of Trump’s biggest supporters. Tesla remains the nation’s biggest electric vehicle manufacturer and sold just under half of all U.S. EVs in the third quarter of this year. Though eliminating the TV tax credit might lower sales, Tesla may still stand to benefit since its competitors are likely to suffer even more. Automakers like General Motors, Ford, and Hyundai have struggled to reduce manufacturing costs and make their EV divisions profitable.
State-By-State Updates
- Chicago rejects a proposed $300 million property tax increase intended to fix the city’s budget problem. The city council voted against Mayor Brandon Johnson’s plan for funding next year’s budget, which is currently $1 billion short of the revenue needed to avoid cutting city services. Johnson previously promised during his mayoral campaign not to raise property taxes but found few alternatives for balancing the budget. Earlier this year, the mayor had proposed a different property tax hike on the sales tax for million-dollar homes to fund programs focused on ending homelessness. Other ideas on the table to resolve the budget problem include lowering contributions to the city’s advance pension fund; raising the city’s garbage collection fee; or increasing taxes on specific goods, such as bottled water, cigarettes, or liquor, or certain services, such as cloud computing, parking, or streaming services.
- Recently-elected Kansas lawmakers promised to provide property tax relief. Across the country, home values have been skyrocketing over the past few years. Now conservative lawmakers are putting the problem at the top of their list for 2025—though agreeing on a tax proposal may still prove tricky. Though Republicans now have a supermajority in the state legislature, the GOP has been divided among themselves on the best approach. Some prefer to limit how much property valuations can increase each year. Others have suggested limiting or reducing the mill levy that provides funding for public schools. The political back-and-forth is expected to be different next year, since the Republican supermajority can potentially override Democratic Governor Laura Kelly who vetoed several bills introduced this year. Despite the disagreements, the governor and the legislature did introduce a tax package that included an increased property tax exemption—the first $75,000 of a home’s value is now tax-exempt, up from $40,000.
- Louisiana lawmakers delay their vote on the governor’s tax reform package. Governor Jeff Landry’s proposed tax bills would collectively introduce $2 billion worth of income and corporate tax cuts. The suggested corporate tax cut would lower the rate from 7.5% to 3.5%, and a second measure would eliminate the 0.275% corporate franchise tax. Individual income tax could also be shifted to a flat rate of 3%. Many of these proposals have progressed through the state House, but lawmakers have hit pause on Landry’s new sales taxes on services like coin-operated laundry machines, lawnmowing, property repairs and maintenance, and tattoo parlors. The sale tax measures would generate about $500 million to cover the cost of the tax cuts. Opponents to the new taxes say that the burden will be placed on small businesses and may cause insurance rates to rise.
- Maryland offers $20 million in tax credits to 10 property rehabilitation projects. Governor Wes Moore announced the recipients, which included affordable housing, makerspaces, and other community serving facilities. Funded through the Historic Revitalization Tax Credit Program, these tax credits are intended to help transform under-used properties into new homes, studios, or community hubs. The program has also proven beneficial to the local job market. In 2020, the property rehabilitation projects supported by these tax incentives created an estimated 24,460 jobs. This year’s recipients include two bank buildings, two former school buildings, a nursing facility, an old church, and a machine factory.
Tax Planning Tips
Will overtime pay taxes disappear under the Trump administration? And how much will that impact workers? Among the many tax cuts mentioned on the campaign trail, President-elect Donald Trump pitched the idea of ending taxes on work hours beyond the standard 40 hours per week. Earlier this year, Republican Congressman Russ Fulcher introduced a similar bill called the Keep Every Extra Penny (KEEP) Act that exempts overtime pay from taxes, but no action has been taken on the bill to-date.
A report from The Budget Lab estimates that about 8% of hourly workers and 4% of salaried workers in the U.S. would qualify. The same report suggests that this income tax deduction could reduce tax revenue by $866 billion over the next decade or as much as $1.3 trillion if these wages are also exempt from payroll tax. A payroll tax exemption would also impact funding for Social Security and Medicare. Another potential obstacle is the federal deficit, which may already grow if Trump successfully extends the Tax Cuts and Jobs Act measures that are set to expire in 2025.
The tariff talks continue—including predictions on how tariffs could affect everyday consumers. A major part of Trump’s economic plan is the introduction of higher tariffs, especially on goods imported from China. The current proposal would impose a 10-20% tariff on all imports and a 60% tariff on Chinese goods. An analysis by the Peterson Institute for International Economics estimates that these tariffs would cost the average American household about $2,600 per year. The National Retail Federation estimates that Americans could lose between $46 billion to $78 billion in spending power across six different categories including apparel, home appliances, and toys.
The Trump administration counters these concerns by saying that the tariffs will incentivize consumers to buy locally-made goods, providing a revenue boost to U.S. manufacturers. Other commentators add that reducing reliance on foreign goods is better for supply chain resiliency and the capacity of the Defense Industrial base. Opponents to the tariffs argue that low-income households will struggle the most under increased tariffs because they typically spend a much higher percentage of their income on the impacted goods. U.S. manufacturers could also use the opportunity to raise prices, making goods more expensive across the board.
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The Wild West of Employee Retention Credits (ERC): Outlaws, Deputies, and Cowboys
Gather ’round, pardners! The Employee Retention Credit (ERC) has been the latest gold rush in the tax frontier, drawing business owners, tax deputies, and even a few sly outlaws. But as the dust settles, the IRS—our law keeping sheriff—is on the hunt for any who might’ve bent the rules. In this frontier of finance, knowing who’s who can keep you out of trouble as the IRS rounds up dubious claims.
Selected Techniques to Monetize Tax Attributes
In the prior article “Tax Trends in M&A and What It Means for Your Clients,” we had discussed certain techniques to, e.g., maximize net operating loss (“NOL”) and interest expense deduction utilization in the context of M&A transactions. This article examines certain additional strategies to monetize expiring, latent, or otherwise disallowed tax attributes.
Do Those Tricks Really Work?
On the website for Axium Wealth, Charles Dombek tells us that: “Most CPAs are historians that tell their clients how much they make, how much they owe, when and where to file their taxes, and oftentimes how to write large checks at the last minute when you least expect.” When it comes to Axium, though: “We help clients recover dollars they unnecessarily pay in State and Federal income taxes.” Axium also helps clients diversify capital into off-market passive real estate and alternative investments. Before Axium, there was The Optimal-Financial Group LLC. Of course many of the readers of Think Outside The Tax Box are CPAs, or EAs or others who both help their clients be compliant and advise on ways to minimize their liability. When I was practicing I would call the things I might suggest my “bag of tricks.”
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