{"id":1830,"date":"2019-04-01T10:00:04","date_gmt":"2019-04-01T14:00:04","guid":{"rendered":"https:\/\/www2.law.temple.edu\/10q\/?p=1830"},"modified":"2019-04-01T10:00:04","modified_gmt":"2019-04-01T14:00:04","slug":"dana-trier-2019-fogel-lecture","status":"publish","type":"post","link":"https:\/\/law.temple.edu\/10q\/dana-trier-2019-fogel-lecture\/","title":{"rendered":"Dana Trier: 2019 Fogel Lecture"},"content":{"rendered":"<p>Placing policy aside, the 2017 Tax Cuts and Jobs Act is still perhaps the most controversial tax bill in recent history. Why? The process. The 2017 Tax Cuts and Jobs Act has been largely criticized as hastily drafted without appropriate public consideration, feedback, and debate. Dana Trier, for the most part, disagrees. His authority for this assessment? He was in the room.<\/p>\n<p>On March 21, 2019, Dana Trier spoke at the Temple University Beasley School of Law as the 2019 Frank &amp; Rose Fogel Lecturer. Mr. Trier, a former Deputy Assistant Secretary for Tax Policy at the U.S. Department of the Treasury, focused his lecture on the process behind the drafting of the 2017 Tax Cuts and Jobs Act, the changes to entity taxation, and the potential implications of \u00a7199A.<\/p>\n<p>What most people fail to realize, Mr. Trier asserted, is that many of the changes in the 2017 tax bill were actually debated and drafted as far back as 2012. In fact, Congress drew much of its inspiration from what Mr. Trier referred to as an \u201cinventory\u201d of previously completed work that, for a variety of political reasons, simply had yet to make it into the formal legislative process. While this was the case for large swaths of the 2017 bill, Mr. Trier conceded that it was not the case for \u00a7199A, which provides a deduction for qualified business income from pass-through entities. Though changes such as those seen in \u00a7199A had been considered in the past, there was no real \u201cinventory\u201d to draw from. As such, the guiding precedent used for much of \u00a7199A was drawn from other sections of the tax code. While Mr. Trier criticized this as an inappropriate drafting method, he noted it was equally inappropriate to evaluate tax legislation until the accompanying regulations have been published and the full impact of the bill is observable in the market writ large.<\/p>\n<p>Here\u2019s why \u00a7199A matters. The 2017 Tax Cuts and Jobs Act dropped the top marginal income tax rate for an individual from approximately 39% to 37%, and the corporate tax rate from 35% to 21%. Given these changes, the difference between the two rates increased from about 4% to 16%. In a pass-through entity, income from the entity flows to the partners and gets taxed at their individual rate. Given the newly enlarged gap between the top individual rate and the corporate rate, Mr. Trier asked the audience to consider what might happen next. Will there be a tendency for business currently conducted through pass-through entities to become C-corporations?<\/p>\n<p>Citing his experience from when this used to be the case, Mr. Trier said that \u201cclosely-held\u201d businesses turning back into C-corporations would be detrimental to the system as a whole. Therefore, he concludes that, regardless of the process that got us here, the \u00a7199A deduction and the intermediate rate it creates for qualified business practices in pass-through entities (about 29.6%) is a good thing. While the gap between this rate and the corporate rate is still about 8.5%, Mr. Trier predicted that this gap may be sufficiently small to prevent closely-held businesses from turning into C-corporations, as they often were in the 1970\u2019s and early 1980\u2019s.<\/p>\n<p>Mr. Trier did have a few criticisms of \u00a7199A. As it is currently written, income from certain specified service-based lines-of-business within a pass-through entity are exempt from the \u00a7199A deduction. However, the type of business income that qualifies for the deduction is not as clear as one would hope. This places the IRS in the uncomfortable position of picking \u201cwinners and losers\u201d with respect to what businesses (and business practices) will qualify for deduction. Additionally, Mr. Trier expressed concern that, given this exemption to the deduction, pass-through entities may end up substituting service-based income for other types of income that do qualify for the deduction.<\/p>\n<p>In concluding the lecture, Mr. Trier urged the audience to \u201cgive this [\u00a7199A] grand experiment a chance,\u201d regardless of the process that got us here. His hypothesis is that when \u00a7199A expires in 2025, it will not be the new deduction that receives the most criticism, but the fact that not all lines-of-business within a pass-through entity qualify to receive it. As Mr. Trier noted, there does not seem to be a convincing argument for why certain business activities within a pass-through entity should be treated differently than others.<\/p>\n<p>As a member of the audience I can tell you, Mr. Trier almost has me convinced. However, just because our legislators are drawing from an inventory of previously completed work, does that mean the public is not still owed a substantive vetting process before a proposal is put to the vote? While I am skeptical of this practice, Mr. Trier has at least convinced me that, since this \u201cgrand experiment\u201d is now law, I should reserve full judgment on the policies now in place until we can analyze how they have played out in the market, regardless of the process that got us here.<\/p>\n<p><a href=\"https:\/\/www.youtube.com\/watch?v=sMUI-HfDacI\"><strong>Watch the 2019 Fogel Lecture (YouTube)<\/strong><\/a><\/p>\n<hr \/>\n<p><em>Andrew LeDonne (LAW \u201921) is a student editor for the 10-Q<\/em>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>In the 2019 Fogel Lecture, Dana Trier, former Deputy Assistant Secretary for Tax Policy at the U.S. Department of the Treasury, urged the audience to give the \u201cgrand experiment\u201d of \u00a7199A of the 2017 Tax Cuts and Jobs Act (which provides a deduction for qualified business income from pass-through entities) a chance, despite potentially troubling ambiguities.<\/p>\n","protected":false},"author":5,"featured_media":1837,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[16,17,9],"tags":[1061,1062,1063,807,1064,1065,1066,1067,1068,345,759,1069,1070,346,1071,10,304,1072],"coauthors":[2,1060],"class_list":["post-1830","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-law-school-and-legal-education","category-student-authored","category-tax","tag-199a","tag-2017-tax-cuts-and-jobs-act","tag-c-corporations","tag-corporate-tax","tag-corporate-tax-rate","tag-deputy-assistant-secretary-for-tax-policy","tag-entity-taxation","tag-fogel-lecture","tag-frank-rose-fogel","tag-income-tax","tag-legislation","tag-marginal-income-tax-rate","tag-pass-through-entities","tag-policy","tag-process","tag-tax-law","tag-temple-law","tag-u-s-department-of-the-treasury","masonry-post","generate-columns","tablet-grid-50","mobile-grid-100","grid-parent","grid-33"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.2 - 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