041113 a green light for tax reform
TRANSCRIPT
7/28/2019 041113 a Green Light for Tax Reform
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WASHINGTON U P D A T E
L ast month,House leaders reairmedtheir commitment to unda-mentally overhaul the Inter-nal Revenue Code or therst time in more than 25 years—designating compre-hensive tax reorm legisla-
tion as H.R. 1, the symbolictop priority or the 113thCongress. But what will taxreorm look like and whatare its chances o success? That depends on whom youask.
House Republicans, ledby Ways and Means Com-mittee Chairman DaveCamp (R-Mich.), havespent the past two yearsraming the terms o the
tax debate and laying outtheir principles or reorm. Their approach mirrors thepremise o the 1986 reorm:dramatically reducing cor-porate and individual taxrates through base broadening; in other
words, closing and curtailing the loopholesand preerences cluttering the current taxcode. Perhaps most importantly, Republi-cans propose doing so in a budget-neutralmanner, putting the revenue gained rom
limiting exemptions, credits and deduc-tions entirely toward lower statutory rates. While the specics o H.R. 1 remain
to be seen, several GOP eorts rom thelast Congress anticipate a similar rame- work. The broad strokes o Rep. Camp’splan comprised the tax portion o Rep.Paul Ryan’s (R-Wis.) 2013 budget pro-posal, which passed the ull House lastspring. Among other elements, the FY 2013 Ryan budget called or a 25 percentcorporate rate, a two-tier personal incometax structure o 10 percent and 25 percent,
during the past two years,beginning with the territo-rial plan or internationaltaxation, ollowed by thetax treatment o inancialproducts such as derivatives,and most recently a drat
dealing with pass-throughbusinesses such as S cor-porations and LLCs. Thissteady, deliberate approachhas kept the plan on track amid electoral setbacks andBeltway skepticism.
Despite regular rhetoricalnods to tax reorm, Demo-crat intentions are decidedly more opaque. While Presi-dent Obama has called orreducing the corporate rate
rom 35 percent to 28 per-cent, he has stopped shorto endorsing comprehen-sive reorm. The president’slong-awaited ramework or business tax reorm was
nally released in 2012, three years intohis administration and in the middle o hisre-election campaign. The Treasury reporthighlighted fve key elements o reorm—namely, the elimination o loopholes andreduction o rates, targeted tax relie or
manuacturers, a minimum tax on oreignearnings, simplied ling or small busi-ness and revenue neutrality.
While these priorities may seem toalign with the Republican plan at rstglance, inherent contrasts exist. Despitethe common mantra o base broadeningand lower rates, the president’s plan wouldeliminate credits and deductions used by all businesses while delivering tax relie only to those who pay at the corporaterate. In other words, his plan would meana massive Fortune 500 tax cut fnanced on
elimination o the Alternative Minimum Tax (AMT) and a shi t to a terr itorialtax system. The House reiterated its sup-port or these principles months later inpassing H.R. 6169, which would haveprovided or expedited consideration o
comprehensive reorm legislation meetingthe same criteria.Much o the remaining work has been
done by Rep. Camp and his sta duringrespective stints with the Simpson-BowlesCommission, where he co-led the TaxReorm Working Group, and the JointSelect Committee on Decit Reduction.But with the 2012 presidential electionlooming over the political landscape, Rep.Camp chose to keep his legislative powderdry. Instead, he has opted to release peri-odic discussion drats o key components
A Green Light for Tax Reform?
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Ap ril 2013 Construction EXECUTIVE | 7
the backs o Main Street businesses, 95percent o which pay taxes at the individ-ual level. Moreover, a corporate-only cut would exacerbate the 25 percent marginalrate gap between small businesses andlarge corporations ssured in the FiscalCli tax deal.
Nonetheless, the procedural wheels arein motion or both chambers to considersome iteration o tax reorm. Rep. Camphas ormed 11 bipartisan working groups within the Ways and Means Committee,each charged with tackling a dierent issue.
Ater hearing rom stakeholders, the groups will report their fndings in mid-May to beincorporated into the House legislation.
Meanwhile, this year’s budget processprovides another window into the parties’respective tax plans. Ryan’s latest budget
again includes Camp’s principles or taxreorm and explicitly provides or its con-sideration on the foor. Meanwhile, theDemocrat-led Senate is poised to pro-duce its rst budget in nearly our years,thanks largely to the “No Budget, NoPay” law passed as part o the debt ceil-ing negotiations.
As wi th an yt hin g in Co ng re sstoday, the key to tax reorm is revenue.Democrats’ chie interest in any taxdeal is the promise o signicant new revenue. The Senate budget is said tocall or $1 trillion in new taxes, and theemerging denition o reorm or the
majority appears to be base broadening.Republicans believe even budget-neutraltax reorm ultimately will generatehundreds o billions o dollars througheconomic growth, but neither Democratsnor the budget reerees at the JointCommittee on Taxation will allow suchdynamic scoring to be considered.
Speaker John Boehner (R-Ohio) andother GOP leaders previously oered upto $800 billion through tax reorm duringthe most recent decit reduction negotia-
tions, but the $630 billion Fiscal Cli taxhike killed any appetite or urther revenueconcessions among the Republican rank and fle. Ultimately, some level o new rev-enue likely will be needed, i only or eachside to save ace.
For his part, Senate Finance CommitteeChairman Max Baucus (D-Mont.)
recently voiced support or passing com-prehensive tax reorm this year and hasheld a series o hearings on the subject. Heenjoys a good working relationship withranking member Orrin Hatch (R-Utah),in addition to serving with Rep. Camp onboth the Simpson-Bowles Commission
and the Joint Select Committee on De-cit Reduction. A discussion drat rom theSenate Finance Committee is expected inthe coming months.
Given Sen. Baucus’ upcoming bid ora seventh term in deep-red Montana, taxreorm may oer a unique opportunity toprove his bipartisan bona fdes while dem-onstrating his independence rom nationalDemocrats and atoning or his role as aleading author o the Patient Protectionand Aordable Care Act. For all the pos-
turing by the White House and its allies,the only meaningul ball is squarely inBaucus’ court.
Liam Donovan is director of legislative
affairs for Associated Builders and
Contractors. For more information, email
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