Bramwell’s Lunch Beat: Execs Add Their Two Cents on Obama's Tax Planby
Meet the corporate board’s ‘kitchen junk drawer’
As new risks multiply, the audit committee has become the “kitchen junk drawer” for many corporate boards, wrote Michael Rapoport and Joann S. Lublin of the Wall Street Journal. The workload of the powerful committees has expanded sharply beyond their core role of overseeing a company’s financial reporting. They are grappling with new regulations, whistleblower claims, and issues like cybersecurity and foreign corruption. “It’s not the favorite committee,” said Fredric Reynolds, a retired CBS Corp. CFO and audit committee chairman at Mondelez International Inc. To attract committee members, he sometimes promises relatively short stints: “You’ll be released for time served and good behavior,’’ he tells directors.
Obama’s corporate tax plan? CFOs weigh in
The Wall Street Journal’s CFO Journal talked to finance chiefs about President Obama’s budget plan, which calls for a one-time 14 percent tax on companies’ overseas earnings. Future foreign profits would incur a 19 percent tax, lower than the current 35 percent rate. The taxes from foreign earnings would be used to pay for US infrastructure improvements. Scott Wine, CEO of Polaris Industries Inc., a maker of recreational vehicles, said, “American corporations are at a significant disadvantage due to our high corporate tax rates. So if this [proposal] can be the beginning of a real discussion to make us more competitive, I am all for it.” Jeff Lasher, CFO of footwear maker Crocs Inc., said, “We as a country have to do something with the international tax code. It’s a little disappointing we don’t hear more talk about it. I’m in favor of anything that more rationally puts the United States in a more competitive situation internationally.” Lasher is skeptical, however, that the Republican-controlled Congress will approve the plan.
GE, Pfizer face $506 billion foreign-cash tax in Obama plan
US companies – including General Electric Co. (GE), Microsoft Corp., and Pfizer Inc. – would pay $506 billion over the next decade under President Obama’s proposal to encourage them to bring back profits held overseas, wrote Katherine Chiglinsky and Thomas Black of Bloomberg. That trio tops the list of Standard & Poor’s (S&P) 500 Index companies in earnings reinvested outside the United States, according to Bloomberg Intelligence analysts Brian Friel and Tiffany Young. Obama’s budget estimates the stockpile of corporate earnings outside the United States at about $2 trillion. GE led US companies with about $110 billion of earnings reinvested outside of the United States as of the end of 2013, according to data compiled by Bloomberg Intelligence. Microsoft held $92.9 billion of its profits outside of the United States as of June 30, while Pfizer’s total was about $69 billion as of Dec. 31, 2013.
Obama’s bid to tax foreign profits could cost Apple $10 billion
And what about Apple Inc.? Adam Shell of the USA Today wrote that President Obama’s proposal for a one-time 14 percent tax on US companies’ foreign earnings stashed abroad could add up to a tax bill of about $10 billion for Apple, as well as Pfizer and Microsoft, according to estimates from Capital Economics. Apple, which has nearly $180 billion in cash, could afford to pay the extra tax. A review of regulatory filings by the 20 biggest US companies – which account for 25 percent of the value of the S&P 500 stock index – found that those firms accounted for “around half of all foreign cash holdings,” according to Capital Economics.
Small exporters wary of Obama tax plan
The Obama administration’s plan to tax the foreign earnings of American companies might hinder the ability of small exporters to compete abroad, several small firms said, wrote Angus Loten and Leslie Josephs of the Wall Street Journal. Roughly 97 percent of the estimated 300,000 exporters in the United States are small businesses, with fewer than 500 employees, according to the US Census Bureau. Many small exporters already have seen their profits hammered by a stronger dollar in recent months. Lee Cohen, general manager of Setton Pistachio of Terra Bella Inc., a California pistachio grower with fewer than 500 employees, said the new tax would put his company at a disadvantage against other global growers, such as those in Iran. “The vast majority of our sales are exports,” said Cohen, who added that the natural response to the new tax “would be to shift to sell domestically.” That, he said, would be detrimental to business, as well as the US pistachio industry: “We do need to export.”
Obama proposes tax on large financial firms
President Obama proposed a broad new tax on financial firms with more than $50 billion in assets, a proposal that is unlikely to advance in Congress but underscores Wall Street’s continued status as a political punching bag, wrote Ryan Tracy of the Wall Street Journal. The White House said the new fee would discourage excessive leverage, or borrowing, by taxing the liabilities of about 100 big financial firms, including banks, asset managers, broker-dealers, and other companies. It would raise an estimated $112 billion over 10 years to fund other priorities, such as tax breaks for middle-income workers. Analysts have said the idea is unlikely to advance in the Republican-controlled Congress. Senate Banking Committee Chairman Richard Shelby (R-AL) said the proposal “would immediately raise the cost of saving and borrowing for all Americans. Simply put, this new tax would discourage thrift, stifle economic growth, and cost American jobs.”
Obama’s 10 new taxes
So far in today’s “Lunch Beat” I’ve included articles on President Obama’s proposed taxes on overseas corporate earnings and big financial firms. But there are eight other big and bold tax proposals that the president included in his 2016 budget plan. Politico’s Kelsey Snell, Kim Dixon, and Brian Faler examined all 10 of his tax proposals in an article published on Monday. President Obama’s latest budget “is his most populist ever, seeking big tax hikes to pay for ambitious new spending on education and infrastructure in a dare to Republicans to find common ground,” they wrote.
Obama seeks funding spike for the IRS
President Obama is seeking a sharp increase in the IRS’s budget, trying to reverse years of cuts in the country’s revenue agency, wrote Bernie Becker of The Hill. The president’s new budget calls for giving the IRS $12.9 billion in fiscal 2016 – roughly an 18 percent increase over the $10.9 billion that Congress approved for the agency in the current fiscal year. IRS Commissioner John Koskinen and Nina Olson, the nation’s taxpayer advocate, have said that the recent budget cuts – the agency is currently getting more than $1 billion less than in 2010 – have made life more difficult for average Americans trying to comply with the tax code. But Obama’s proposal for a spike in IRS funding is likely to find little sympathy among congressional Republicans. Koskinen is scheduled to testify about the IRS’s budget before the Senate Finance Committee on Tuesday in his first testimony there since Republicans took over the chamber.
House tax writers take another crack at expensing
Becker also wrote for The Hill that House tax writers have rolled out a measure to permanently extend tax rules that allow small business to quickly write off investments. Reps. Pat Tiberi (R-OH) and Ron Kind (D-WI) introduced the same measure in the last Congress. House Majority Leader Kevin McCarthy (R-CA) has said the chamber will vote to permanently extend the expensing rules this month. “It's been proven that members of both parties can unite around this issue and pass this critical legislation,” Tiberi said in a statement. Under the bill from Tiberi and Kind, small businesses would get to immediately deduct up to $500,000 in equipment. Because the provision expired at the end of 2013, owners can currently write off $25,000 in investments immediately.
KPMG moves up AIM auditor rankings with new client wins
KPMG has moved above Grant Thornton to become the second-largest auditor of Alternative Investment Market (AIM)-listed companies by client numbers, according to the latest statistics from Adviser Rankings, wrote Richard Crump of Accountancy Age. The Big Four firm picked up six new clients in the three months to Jan. 6. BDO retained the top spot with 158 clients, while PwC remained in fourth with 119 clients. PwC did take the top spot as the leading auditor of FTSE AIM UK 50, but there was little movement elsewhere within the AIM top tier, although the relative standing of BDO and Grant Thornton did improve.
SEC alerts investors, industry on cybersecurity
The US Securities and Exchange Commission (SEC) on Tuesday released publications that address cybersecurity at brokerage and advisory firms and provide suggestions to investors on ways to protect their online investment accounts. One publication, a Risk Alert from the SEC’s Office of Compliance Inspections and Examinations, contains observations based on examinations of more than 100 broker-dealers and investment advisers. The second publication, an Investor Bulletin issued by the SEC’s Office of Investor Education and Advocacy, provides core tips to help investors safeguard their online investment accounts. “Cybersecurity threats know no boundaries. That’s why assessing the readiness of market participants and providing investors with information on how to better protect their online investment accounts from cyber threats has been and will continue to be an important focus of the SEC,” SEC Chair Mary Jo White said.