Trump to Sign Order Reviewing Tax Rules Issued in 2016

  • President to sign two memoranda related to FSOC designations
  • Trump to order review of orderly liquidation authority

Mnuchin Says 'We're Going to Get Tax Reform Done'

President Donald Trump will sign an executive order Friday directing Treasury Secretary Steven Mnuchin to review any significant tax regulations from last year, especially those that might burden Americans.

The president will also sign memos related to the designation process of systemically important banks and to orderly liquidation authority.

Trump will visit the U.S. Treasury department Friday to sign the order, which is aimed at identifying and reducing tax regulatory burdens that “add undue complexity” and “exceed statutory authority,” the White House said in a statement.

Under President Barack Obama, Treasury sought to rein in U.S. companies’ attempts to shift their profit offshore by proposing rules that would curb so-called “earnings stripping” and inversions -- mergers in which U.S. companies transfer their tax address overseas to low-tax countries like Ireland to cut their tax bills.

Some of those rules, first proposed in April 2016, sought to restrict lending among subsidiaries of the same corporate parent, a technique that can create income in low-tax countries and tax-deductible interest payments in the U.S. The proposed rules met a barrage of criticism from corporations and tax lawyers, who complained that they went too far by banning common, everyday cash-management practices that have nothing to do with tax avoidance.

Amid the criticism, Treasury last October softened the proposed rules to allow cash pooling, a common corporate money-management technique in which excess cash in subsidiaries is swept daily into a single pool. It also delayed a related proposal, which would require companies to extensively document their related-party lending, until Jan. 1, 2018.

Systemically Important

One of the memos Trump will sign will require a review of the Financial Stability Oversight Committee’s designation process for systemically important banks -- and risks created by such designations. The other will review orderly liquidation authority, with a report due to Trump within 180 days, and examine whether enhanced bankruptcy authority is a better alternative for failing financial companies. It will also look at the adverse impact of failing financial firms, and whether availability of bankruptcy authority could lead to excessive risk-taking.

Trump already signed an executive order in February instructing regulators to examine financial rules and file a report on their findings, kicking off what the administration has promised will be a broad overhaul.

The U.S. House of Representatives earlier this month approved legislation to create a new bankruptcy process for financial companies with more than $50 billion in assets that could allow for a quick transfer of a failed bank’s assets and impose a temporary stay of some contractual rights to give the company time to restructure. The measure aims to address concerns that led lawmakers to approve taxpayer bailouts during the 2008 credit crisis. At the time, the structures of Wall Street banks were considered too complex to go through bankruptcy court.

The 2010 financial-regulation law known as Dodd-Frank established a so-called orderly liquidation authority under which the Federal Deposit Insurance Corp. is empowered to untangle and wind down the biggest banks. Republican lawmakers have said the law doesn’t address the fact that Wall Street firms remain too big to fail, meaning taxpayers will still be on the hook for future rescues.

Numerous roadblocks remain before banks will see any relief from restrictions put in place after the 2008 credit crisis. Obama administration holdovers are still running most of the agencies that oversee financial firms and getting legislation through Congress is likely to require Democratic support in the Senate.

— With assistance by Elizabeth Dexheimer, and Lynnley Browning

(Updates with tax proposals starting in fourth paragraph. A previous version of this story was corrected to reflect that the president will be signing an order.)
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