Comedians, Politicians & Taxation

Comedians, Politicians & Taxation

Neil Winward 16/11/2017 4

It has been a tough few days for clay-footed public figures: movie stars; Hollywood producers; comedians and the US Republican Party’s least favorite candidate for the Alabama Senate seat vacated by Attorney General, Jeff Sessions.

With very few exceptions, there are solid reasons why people are better seen with rather than without clothes. It is also good policy for single men in their thirties to visit shopping malls with the very targeted and express purpose of making a quick purchase and then leaving.

Hypocrisy, it seems, is an equal opportunity spoiler of reputations across the political divide. Invoking the story of Jesus, Mary and Joseph to excuse a relationship with a minor is never going to play well.

Similarly, if repatriating $2.6trn of untaxed overseas earnings is a key goal of tax reform, it would be helpful if those earnings were in fact overseas to begin with…

In the Abattoir


Tax reform in the US in now fully engaged. The legislative process is working its way through the House Ways and Means and Senate Finance Committees. Amendments are being offered continuously (the most recent being the amendment to the Senate proposal to tax equity compensation on vesting – a near death blow to start-up companies). Votes on the floors of each house of congress are expected before Thanksgiving. Assuming both House and Senate can vote through a bill – far from certain because of the precarious Senate Republican majority - then both bills will proceed to a joint conference committee, where more amendments will be offered – more lobbying – and a compromise proposal will emerge.

It is unlikely that any legislation that emerges will get everything right the first time. Typically, major tax legislation requires follow-up, technical corrections legislation soon after it is signed into law as the tax bar and user community figure out where the problems are.



It is still too soon to begin writing anything definitive about the details of reform. Some broad consensus is, however, beginning to emerge.

Repatriation of the $2.6trn of overseas earnings that have been removed from the US tax base before ever being taxed over a period of many years is a common theme in both House and Senate bills. The bills differ on the rate at which this pot of earnings is to be taxed, but the methodology is similar. The money will be deemed to have been repatriated and taxed as if it has been repatriated. Taxpayers will then be free to bring it back to the US and begin to invest in rebuilding the sagging infrastructure of the US…

The premise of repatriation – that earnings are in fact overseas – turns out, however, to be mostly false. IRC Section 956 is the code section dealing with the taxation of overseas earnings and repatriation. It taxes overseas earnings of a US domestic parent company held by one or more of its overseas companies (controlled foreign corporations or CFCs) when they are invested in US property as defined.

US property is, not surprisingly, very broadly defined and clearly prevents US parent companies from using untaxed overseas earnings to buy US real estate; to repurchase their own stock; or to fund their US operations. There is, however, also a broad exception for stocks, bonds - securities - of US corporations that are not related to the US parent company or CFC and for bank deposits and for obligations of the US government.

Given this generous exception, it is not surprising that the majority of the $2.6trn of overseas earnings are already ‘back’ in the US. The only thing missing is the tax owed to the IRS on these earnings. While the result of any new tax legislation will certainly be revenue positive for the US Treasury, it will not result in any other stimulus or catalyst to US economic growth. Once again, infrastructure may miss out.



Hollywood will continue to expose its dark and flawed soul; politicians will continue to swaddle themselves in lies, half-truths and hypocrisy and the tax code will change – for sure. Overseas earnings will be taxed; there will be a tariff on payments out of the US whose goal is to reduce the US tax base; state and local taxes will lose some or all of their deductibility against Federal taxes; the corporate tax rate will be lowered; there will be a change in the bands for individual taxation and there will be a new tax rate applied to income of a certain kind passing through partnerships to passive investors. These things are clear. The details will become clearer over the Thanksgiving break. Stay tuned.

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  • Frank Hodges

    They can pass it in the house but it will never pass in the Senate. Hahahaha :)

  • Patrick Sanders

    Doesn't make any difference because, the Senate will screw it up. Vote an Incumbent out next election, this Bill isn't all it can be!

  • Mike001

    I pray that the Senate does its job.

  • Angela K

    First came the Bush tax cuts. Then came the great recession. Why are all of the deficit hawks completely silent now? The GOP wants to cut the taxes of the wealthiest of the wealthy. They don't even need it. Raise taxes on the wealthy. Use that money to pay the debt down to zero.Then talk tax cuts. A minimum wage increase would stimulate the economy more than a tax cut for the wealthy.

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Neil Winward

Taxation Guru

Neil is the CEO of Sevara Capital Advisors. He is passionate about solving tax, accounting and regulatory problems for institutions that have invested billions of dollars of capital in multiple jurisdictions. His company provides solutions for banks, insurance companies and hedge funds to tackle their problems related to tax returns, financial statements, accounting and internal finance matters. Neil holds a master’s degree in Law from the University of Cambridge. 

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