You Auto Know Week in Review: November 3, 2017

You Auto Know 11/03/17

House Releases Tax Reform Legislation; Industry Prepares for Next NAFTA Round

The highly anticipated Republican tax bill, the Tax Cuts and Jobs Act, was released yesterday and a mad sprint now begins to achieve the ambitious goal of passing it before the Thanksgiving holiday.  Some of the major highlights of the $1.51 trillion package include the simplification and streamlining of individual tax brackets and increasing the standard deduction, cutting the corporate tax rate from 35% to 20%, and new limits or caps on some popular deductions, including the state and local tax deduction and the mortgage interest deduction.

The Estate Tax exemption would be doubled from the current $5.49 million to $11 million and the tax would eventually be phased out completely over six years.  The tax rate for “pass through” businesses would be lowered to 25 percent from the current 39.6 percent, but a formula will be applied to ensure that business owners will pay a higher individual tax rate on income that they receive as wages.  LIFO would remain unchanged.

House Ways & Means Committee Chairman Kevin Brady (R-TX) has already announced that the bill will be “marked up,” or debated and possibly amended, by the Committee on Monday, November 6.  But it’s still unclear what its ultimate fate will be in either the House or in the Senate, in which Republicans have an even slimmer majority. President Trump has indicated he would like to sign a tax bill into law by Christmas.

Meanwhile, it was also aannounced yesterday that the sixth round of the NAFTA negotiations will take place in December in Washington, following the fifth round which is set to begin on November 17 in Mexico City.  The Driving American Jobs coalition is continuing efforts to educate decision-makers about the important role NAFTA plays in the competitiveness of U.S. auto industry. The negotiations will continue into next year, but will be further complicated by the Mexican elections set for July 1, 2018. 

More than ever, dealers need to drive home the importance of trade with their Members of Congress and showcase the economic impact of international nameplates in the U.S.  There are two ways to get involved:

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Quotes of the Week

“It is the most immoral offensive major tax I know because you can earn your income fair and square and pay your taxes and you can take what you made off your taxes to Las Vegas and gamble. As far as my federal government is concerned, it’s my money you rat. If you take that same money and give it to your kids, they will then tax you for it. It’s the most immoral tax I’ve ever seen. The reason I work and create an estate is for my kids. It absolutely kills off growth and it’s a terrible tax.”

            -Art Laffer, Economist and former Reagan Economic Policy Board Advisor, discussing the Estate Tax (Fox Business)

“We are fighting a pervasive view that our economy has not benefited from NAFTA, and that is simply not right.”

            -Senator Pat Roberts (R-KS) (Inside U.S. Trade)

House Republicans Unveil Sweeping Plan to Slash Tax Rates (The Hill)

House Republicans on Thursday released their long-awaited legislation to overhaul the tax code, proposing major cuts to corporate and individual tax rates. The 429-page bill, called the “Tax Cuts and Jobs Act,” represents the opening salvo in the GOP's fight to rewrite the tax code for the first time in more than 30 years.

"It's the beginning of the end of this horrible tax code," House Ways and Means Committee Chairman Kevin Brady (R-Texas) said.

The bill largely follows the parameters that GOP leaders and the White House outlined in September. It would reduce the number of individual tax brackets, slash rates for businesses and eliminate a number of tax breaks.

In order to offset the costs of the legislation, Republicans are putting forward some proposals that are sure to be controversial.

The bill would keep the mortgage-interest deduction, but only for interest on the first $500,000 of a newly purchased home; the cap is now set at $1 million. Homes bought in the past could keep the deduction regardless of price. The housing industry quickly blasted the changes.

The legislation would also allow taxpayers to deduct their state and local property taxes, but only up to $10,000. It would not allow people to deduct state and local income or sales taxes.

Blue-state Republicans have fought to preserve that deduction, which is important to their constituents. It’s not clear how receptive they will be to the compromise.

“I’m still analyzing it, but right now, I’m strongly leaning no,” Rep. Pete King (R-N.Y.) said.

Several other controversial ideas that were floated to help pay for the bill, including limits on pre-tax contributions to 401(k) plans and a repeal of ObamaCare’s individual mandate, were not included.

Republicans are still searching for their first major legislative victory since President Trump took office, and hope that the tax overhaul will charge up the economy and help their standing with voters.

The president quickly backed the plan Thursday morning, calling it a step toward "massive tax relief for the American people."

"The special interests will distort the facts, the lobbyists will try to save their special deals, and some in the media will unfairly report on our efforts. But my Administration will work tirelessly to make good on our promise to the working people who built our Nation and deliver historic tax cuts and reforms — the rocket fuel our economy needs to soar higher than ever before," Trump said in a statement.

The legislation collapses the current seven brackets to four, with the top tax rate staying at 39.6 percent. The other individual rates in the bill are 12 percent, 25 percent and 35 percent.

The standard deduction is nearly doubled, while the child tax credit is increased from $1,000 to $1,600. The bill also creates a $300 credit for expenses related to the care of parents and non-child dependents, and it preserves the child and dependent care credit and the earned income tax credit.

The bill also repeals the alternative minimum tax. The amount of assets exempt from the estate tax would initially be doubled, and the tax would be repealed after six years.

The corporate tax rate would be lowered from 35 percent to 20 percent. The bill would also lower the top rate for noncorporate “pass-through” businesses from 39.6 percent to 25 percent.

The tax-writing Ways and Means Committee plans to start considering the bill on Monday, and GOP leaders are aiming for the measure to pass the House by Thanksgiving — a breakneck pace that is likely to test party unity.

This Week in Policy News

House GOP Tax Plan Sticks With Big Corporate Cuts (Wall Street Journal)

GOP Bill Will Kill the Estate Tax, After 6 Years (CNBC)

NAFTA Could Be Modernized But It's Mostly Working, Carmakers Say (Bloomberg)

Trump’s States Need NAFTA (Wall Street Journal)

This Week in Auto News

America’s SUV Thirst Hits Luxury Brands Behind the Scenes (Automotive News)

AutoNation to Provide Service to Waymo’s Self-Driving Cars (Automotive News)

International Brand Auto Sales Rose in October (Market Watch)

Must Watch

Watch Ways & Means Chairman Kevin Brady (TX) announce the Tax Cuts and Jobs Act.

Friday Funny

Baby Frankenstein Born on Halloween

A baby with a name fitting for the spookiest day of the year was born in Florida on Halloween.

Oskar Gary Frankenstein came into the world four days late, prompting the family to believe that he decided to wait until Halloween for a reason, his grandmother, Jennifer Frankenstein told WKMG.

Jennifer Frankenstein said Oskar is her first grandchild, but told WKMG she has a daughter who was born on the same day as Frankenstein author Mary Shelley. (USA Today)