Transcript Congressional Tax Issues 2012

US GAPP
LEADERSHIP
FLY-IN
LEADERSHIP
FLY-IN
Washington, D.C.
June 26-28, 2012
Washington, D.C.
June 26-28, 2012
US GAPP
Congressional Tax Issues 2012
J.V. Schwan
Director
Government Affairs & Public Policy
Baxter Tax Messaging
Lowering the corporate rate and adopting a territorial system
could help:
CREATE JOBS IN THE US: Baxter employs over 20,000 individuals in the U.S., with
2205 US jobs supporting our overseas investments -- desirable, high quality jobs. In
addition, we have over 11,000 manufacturing employees in the United States.
INCREASE EXPORTS AND FOREIGN SALES: At Baxter, 60% of our sales are outside
the U.S. We export over a billion dollars- $300 million in finished products and over
$700 million in US manufactured components that support our foreign facilities.
Lowering the corporate rate and allowing profits to flow back to the U.S. would help
our exports.
INCREASE GLOBAL COMPETITIVENESS: Foreign-based competitors enjoy lower tax
rates at home and most are allowed to exempt foreign profits from tax. This gives
them a competitive advantage over U.S.-based companies, both in pricing products
and in bidding for acquisitions.
Agenda
• Budget Outlook
• Immediate Tax and Fiscal Issues
• Baxter’s Corporate Tax Issues
Budget Outlook
Budget Deficits Continue
Deficit or Surplus as % of GDP
4.0
2.0
0.0
1985
1990
1995
2000
2005
2010
2015
-2.0
Deficit
-4.0
-6.0
-8.0
-10.0
-12.0
Source: Office of Management and Budget
Tax Revenues Below Historical Average/Expenditures
Above Historical Average
30.0
25.0
20.0
As Percentages of GDP
Receipts
15.0
As Percentages of GDP
Outlays
10.0
5.0
0.0
1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Source: Office of Management and Budget
Corporate tax collection remains modest compared to other sources
Percentage of Taxes Collected by Source
60.0
50.0
40.0
Individual Income Taxes
30.0
Corporation Income Taxes
SS/MC
Other
20.0
10.0
0.0
1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
Budget Outlook Takeaways
• Revenue/Expenditure trajectory is
unsustainable
• Current budget expected to drive election
debate (cut vs. tax)
• Current budget led to the first downgrade of
US Debt- downgraded from AAA to AA+
Immediate Tax and Fiscal Issues
Approaching the “Fiscal Cliff”
If Congress fails to act by the end of the
year:
• Taxes increases for individuals and corporations and
• Significant spending cuts take effect.
Tax Increases
Corporate:
•
Research and Development Tax Credit
is not renewed (currently expired)
•
Tax deductions for “bonus
depreciation” on capital expenditures
is not renewed (currently expired)
Individual:
Top four individual rates, currently 35%, 33%, 28%, 25%, increase to 39.6%, 36%,
31% and 28%.
Capital gains increase from 15% to 20%
Dividend rate increases from 15% to individual rates.
Above list is of most
significance to Baxter.
Other provisions also
expire.
Spending Cuts
• As part of last summer’s deal to
raise the debt ceiling, Congress
agreed to draconian budget cuts
(sequestration) unless Congress
agreed to other cuts or revenue
increases.
• To date, Congress has failed to
act.
•If Congress doesn’t act, the planned sequester will slash the federal
budget to the tune of $1.2 trillion over 10 years.
•The reduction includes $500 billion in defense spending and $123
billion in payments to Medicare providers.
Immediate Tax and Fiscal Issues Takeaways
• The looming tax increases and spending cuts put
corporate tax reform “in play” for 2012, but will
most likely be addressed in 2013
• In 2012, Congress will do one of three things on
taxes and spending:
1. Strike a long-term “grand bargain” (5%)
2. Fail to act (30%)
3. “Punt”-extend the status quo for six months
(65%)
Baxter’s Corporate Tax Issues
What Kind of Corporate Tax Code do We Want?
• We need corporate tax code that creates jobs,
enhances global competitiveness and increases
exports.
• We need a corporate tax code that aligns the
U.S. rate with international norms and unlocks
foreign cash to the US.
• We need a corporate tax code that allows Baxter
to fairly compete with foreign companies.
President’s Corporate Tax Proposal
Beneficial Elements:
• Reduces the corporate rate from 35% to 28%.
• Provides a lower tax on manufacturing activities in the U.S.
• Provides for a permanent Research and Development Tax Credit.
Detrimental Elements:
• Creates a minimum tax on all overseas profits
• Maintains a “word wide” taxation system
Baxter Position:
• Increase in international taxes far outweigh the lower rate and R&D credit
Republican Corporate Tax Proposal
Positive Elements:
• Reduces the corporate rate from 35% to 25%.
• Provides for a territorial tax system.
Negative Elements:
• Effectively creates a minimum tax on all overseas profits
• Does not clarify what other deductions will be removed to achieve a 25%
rate.
Baxter Position:
• Increases in international taxes far outweigh the lower rate and adoption of a
territorial system.
Baxter Tax Messaging
Lowering the corporate rate and adopting a territorial system
could help:
CREATE JOBS IN THE US: Baxter employs over 20,000 individuals in the U.S., with
2205 US jobs supporting our overseas investments -- desirable, high quality jobs. In
addition, we have over 11,000 manufacturing employees in the United States.
INCREASE EXPORTS AND FOREIGN SALES: At Baxter, 60% of our sales are outside
the U.S. We export over a billion dollars- $300 million in finished products and over
$700 million in US manufactured components that support our foreign facilities.
Lowering the corporate rate and allowing profits to flow back to the U.S. would help
our exports.
INCREASE GLOBAL COMPETITIVENESS: Foreign-based competitors enjoy lower tax
rates at home and most are allowed to exempt foreign profits from tax. This gives
them a competitive advantage over U.S.-based companies, both in pricing products
and in bidding for acquisitions.
Device Tax
Issue: The Affordable Care Act created a 2.3% tax on
sales of medical devices effective in 2013.
Impact to Baxter: Preliminary estimates suggest our
liability may at least $30 million in 2013.
Outlook: House voted to repeal the tax. Legislation is
stalled in the Senate and the Administration is unlikely
to support repeal.
Baxter Message: Repeal the device tax.
Agenda
• Budget Outlook
• Immediate Tax and Fiscal Issues
• Baxter’s Corporate Tax Issues
Budget Outlook