A View From Washington: The Payments Industry's Mixed Outlook

After a spirited debate, Congress passed a historic tax reform bill and President Trump signed the U.S. Tax Cut and Jobs Act into law on December 22, 2017. It is the first major reform to our nation’s tax code in more than three decades.

A View From Washington: The Payments Industry's Mixed Outlook

A View From Washington: The Payments Industry's Mixed Outlook

Scott Talbott

Scott Talbott

Scott Talbott, J.D., C.P.A., is SVP of government affairs at the Electronic Transactions Association. He is an experienced policy advocate and communicator with two decades of experience in Washington.

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After a spirited debate, Congress passed a historic tax reform bill and President Trump signed the U.S. Tax Cut and Jobs Act into law on December 22, 2017. It is the first major reform to our nation's tax code in more than three decades.

The reform was much needed, and many in our industry advocated tirelessly for its success. Proponents say the new tax code will help grow the nation's economy, create jobs, raise wages and make American companies more competitive in the global economy.

So what's changed in this new tax code? Perhaps the largest and most headline-grabbing change is that American businesses – large and small – will benefit from a permanent and substantially lower tax rate for 2018. Specifically, American businesses' tax rate is lowered to 21 percent from 35 percent, a 14-percent point decrease. Bringing down the tax rate for American businesses makes the U.S. code more competitive internationally and will bring long-term gains to the nation's economy.

The rate for pass-through companies was also substantially lowered, meaning that small businesses and startups will no longer be taxed as if business income was personal income. Individuals involved with S-corporations can generally deduct 20 percent of their qualified business income from a pass-through entity (like an S-corp, partnership or sole proprietorship) on their personal tax return.

At a staggering 95 percent, the vast majority of businesses in the United States are pass-throughs like S-corps and limited liability companies (LLCs). For so many businesses, including small merchants and merchant service providers, this lower rate will mean entrepreneurs will be able to hire new employees, expand their stores or purchase new equipment.

A modern take on taxes

The new tax code also modernizes our tax system for global commerce. By switching to a "territorial system" and creating a more favorable environment for international investment, American companies will be able to invest foreign profits to substantial domestic gain. At the end of the day, reduced costs will free up money to invest in new technologies and products stateside.

In summary, the new tax law is providing significant tax relief. U.S. companies across the board, including those in payments and fintech, will have more money to invest in their employees and their products. This means higher wages, better benefits, increased jobs and more innovative products.

For so many businesses...

Take a glance at recent headlines and the effect is already clear: Hundreds of companies across the globe — including many in the payments industry — have given company-wide bonuses, added new jobs and pledged significant future investments in our nation’s economy. These changes will not only bring new investment to our economy; they make a lot of sense too.

A tide of optimism

These changes have helped fuel a bit of newfound optimism for the payments industry. As the regulatory pendulum swings toward creating a positive policy environment in Washington, there will be key opportunities to help strengthen the payments industry's ability to help merchants better serve their customers.

For example, as breaches remain an unfortunate reality, there is growing momentum in Congress to enact a uniform national data breach notification standard. Currently, when a company is the victim of a breach, it must comply with 49 state data breach notification standards. This has a high cost in terms of time – which is of critical importance and in short supply during a breach – and amplifies compliance costs and risks. Plus, it is confusing to consumers.

Finally, we can anticipate more activity to happen at the state level in 2018. When budgets get tight, state lawmakers look for ways to close the gap, and increasingly put payments technology into the crosshairs. Last year, we saw states increase their policymaking with regards to payments technology and fintech firms. This year we expect to see more of the same, so the payment industry advocates must remain active to keep burdensome, unnecessary or costly measures like real-time sales tax collection off the law books.

In 2018, payments companies across the country will need to be mindful of state-level policymaking that could affect their businesses. Working with policymakers to ensure an innovative and free market for the payments industry helps yield positive outcomes to not only the state economies but our industry as well.

The statements and opinions of the writer do not necessarily reflect those of TSYS.

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Scott Talbott

Scott Talbott, J.D., C.P.A., is SVP of government affairs at the Electronic Transactions Association. He is an experienced policy advocate and communicator with two decades of experience in Washington. Talbott has represented the largest financial services firms in the country before Congress and federal regulators, most notably during the fiscal crisis. He is also an expert on communication, appearing regularly on national and international media. He has been called the voice of the financial services industry and one of the most recognizable faces in the industry.

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