Territorial Tax System Under US Government Consideration

Territorial Tax System pic

Territorial Tax System
Image: ey.com

Michael Mundaca works at Ernst & Young (EY) as co-director of its National Tax Department and Americas Tax Center. In serving clients, Michael Mundaca draws on past experience with the US Treasury Department as assistant secretary for tax policy.

A recent Global Tax Alert from the EY Americas Tax Center brings into focus the current debate regarding whether and how a territorial tax system should be implemented by the United States. Part of both the White House and Congressional Republican tax reform plan outlines, as well as being an element of the tax regimes of most major trading partners of the United States, a territorial system would largely exempt from US income tax the foreign profits of US multinational corporations. A more detailed Republican tax reform plan is expected in September at the earliest.

The Role of the Office of Tax Policy

Office of Tax Policy pic

Office of Tax Policy
Image: treasury.gov

Michael Mundaca is co-director of the National Tax Department and the Americas Tax Center at Ernst & Young. Before that, Michael Mundaca served as the assistant secretary for tax policy at the U.S. Treasury Department.

The Treasury Department’s Office of Tax Policy develops and implements tax programs and policies and provides estimates for government receipts for the president’s fiscal policy decisions, budget, and U.S. Treasury cash management decisions. Also working at the international level, the office negotiates U.S. tax treaties and represents the country in meetings and in the efforts of multilateral organizations that handle tax policy matters, such as the Organisation for Economic Cooperation and Development.

The assistant treasury secretary for tax policy and his or her deputies get advice from, and oversee the activities of, those in Tax Policy’s Office of the International Tax Counsel, the Office of the Tax Legislative Counsel, the Office of Tax Analysis, and the Office of the Benefits Tax Counsel.

To learn more about the Office of Tax Policy, visit www.treasury.gov.

Trump Administration Tax Plan on the Government Agenda


Trump Administration Tax Plan
Image: whitehouse.gov

A principal in Ernst & Young, LLP, working in Washington, D.C., and a co-leader of EY’s Americas Tax Center and its National Tax Department, Michael Mundaca draws on past experience with the U.S. Treasury Department as assistant secretary for tax policy. Michael Mundaca’s work as co-leader involves coordination with professionals across the Americas in facilitating tax services.

As featured in a recent EY Americas Tax Center Global Tax Alert, one topic of current focus is a tax reform plan presented by the Trump Administration that proposes a tax rate of 15 percent for businesses. As part of the plan roll-out, Treasury Secretary Steven Mnuchin announced that the administration would negotiate with Congress on the rate for a one-time tax that would be assessed on US corporations’ unrepatriatied foreign earnings, as a transition to a territorial tax system for foreign business earnings.

Other proposed changes include a repeal of individual tax deductions other than those associated with charitable contributions and mortgage interest. The estate tax and alternative minimum tax would be repealed, as would be the net investment income tax, which went into law as part of the Affordable Care Act.

An Explanation as to Why the Wealthy May Pay Tax at Lower Rates

Michael Mundaca

Michael Mundaca

As co-leader of the National Tax Department at Ernst & Young in Washington, DC, Michael Mundaca builds on experience gained as assistant secretary for tax policy at the U.S. Treasury Department. On the Freakonomics blog in 2010, when Mr. Mundaca was the tax policy assistant secretary, as part of an article titled “Your Tax Questions, Asked and Answered,” he responded to a query as to whether Warren Buffett could pay “a lower tax rate than his secretary.”

Noting that he was not aware of the specific tax circumstances of Warren Buffett or his secretary, Mr. Mundaca posited that this was certainly possible under the (then current) tax law. Although wages may be subject to a 35 percent maximum marginal tax rate, long-term capital gains as well as dividends were at that time subject to a maximum 15 percent marginal tax rate.

That can lead to situations in which an individual with long-term capital gains could have paid 15 percent or less on that income; at the same time, an wage earner with significantly lower income might have paid taxes at a rate well in excess of 15 percent. Another factor in play was the exemption of investment income from payroll taxes, which can additionally decrease the tax burden on those with significant income from investments.