A Trade War That Wasn’t… And A Deal That Already Was

Taxes

Trump backs off Mexico tariff threat—for now—in return for few concessions.  The New York Times reports that the deal averting 5 percent tariffs on Mexican goods does little more than restate  border control promises that Mexico made months ago. While the agreement appears to include no benchmarks for reductions in crossings at the US-Mexico border, President Trump threatened to impose tariffs at a later date if Mexico does not follow through with “great cooperation.” 

The Mexican government is unaware of the agricultural component of Trump’s deal.  Trump insists  that Mexico will “immediately begin buying large quantities of agricultural product” from the US as part the agreement. But Bloomberg reports that three Mexican officials were unaware of this provision  and that agricultural trade was not even discussed in last week’s negotiations.

G-20 finance ministers agree to build a common tax structure for digital commerce. Finance ministers from nations in the Group of 20 say they’ll try to build a common system to tax tech giants, despite objections from US Treasury Secretary Steven Mnuchin. If the G-20 follows through, it would boost taxes on the firms, which are mostly US-based. The European Commission says that tech firms pay an average effective tax rate 9.5 percent compared to 23 percent for other businesses. 

IRS wins its appeal on cross-border cost-sharing agreements within corporations. The Ninth Circuit Court of Appeals upheld IRS regulations that define where a corporation should deduct share-based compensation. The IRS had required Altera Corp., now a subsidiary of Intel, to deduct more of that compensation abroad and not in the US. Companies prefer to deduct more business expenses in the US and keep more profit in lower-taxed foreign subsidiaries. The Wall Street Journal explains (p aywall) that the ruling could boost taxes on the tech industry by billions of dollars.

House Democrats revise IRS reform bill—this time without Free File. The Democrats dropped a provision that would have locked in the ability of tax prep private firms to offer the Free File product. The IRS’s ongoing relationship with the firms became a congressional hot potato after Pro Publica reported that they were steering users away from Free File and to paid software.

The IRS is doing less with less. TPC’s Bob Weinberger uncovers a jarring story in the 2018 IRS Data Book. A shrinking budget and staff are resulting in declining enforcement and in-person taxpayer services. “That gives a green light to tax cheats, jeopardizes the entire voluntary compliance system, and risks the failure of still-antiquated tax processing systems.”

Are opioids the new tobacco? When it comes to lawsuits, yes. State lawsuits against drugmakers and others involved in the sale, marketing, and manufacture of the pain-killers are likely to be a significant source of revenue. This would mirror suits against tobacco companies in the 1990s. But TPC’s Howard Gleckman warns that if history is any guide, states are likely to use the revenue for unrelated purposes, ultimately doing little to stem the opioid crisis. He offers better solutions: “Cover drug treatment with insurance and expand Medicaid. And don’t wait for the litigation to get resolved, spend the money now.”

How high can a sin tax go? On June 15, the government of Oman will levy a 100 percent tax on tobacco, alcohol, pork, and energy drinks. Carbonated drinks will face a 50 percent tax. The new levies could generate $260 million annually. The sultanate, which is the largest Arab producer of crude oil, is trying to reduce its reliance on oil revenue. Oman faces a 9 percent budget deficit due in part to lower oil prices and dwindling reserves.

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