15 January 2016 EY Center for Tax Policy: This Week in Tax Reform for January 15 Brady intends to act on international tax reform: At several points over the past week, House Ways and Means Committee Chairman Kevin Brady (R-TX) made clear his intention to bring international tax reform legislation to a vote in the Committee this year. "There's no guarantee an international tax proposal can or will make it to the president's desk, but it's very important that we advance it as far as we can in this year," Chairman Brady told reporters at the bicameral Republican retreat in Baltimore January 14, as reported by Bloomberg BNA. He said repatriation of foreign earnings and inversions will be two focus areas and the subject of hearings in the Committee. Brady said he is set to begin working with Senate Finance Committee Chairman Orrin Hatch (R-UT) on a proposal the week of January 18 and noted the urgency of the inversions issue. On January 13, Chairman Hatch suggested to reporters that a tax reform package to address inversions could be announced within the next three weeks, though his staff later signaled that there is no set time frame for action. During a Politico event January 11, Chairman Brady said an incremental approach through international reform this year "allows us to focus in 2017 on the rates and the design" of comprehensive tax reform, which he wants to result in a statutory corporate income tax rate under 20%. He said his preference would be to dedicate revenue from taxing repatriated foreign earnings to lowering rates, which is the same viewpoint expressed by Senate Majority Leader Mitch McConnell (R-KY) last month. Senator McConnell said he does not support using tax reform for spending; instead, "whatever revenue produced by eliminating preferences ought to be used to buy down rates and to make America more competitive." The retreat ended with Speaker Paul Ryan (R-WI) announcing that a pro-growth agenda, intended to provide voters a clear choice in the elections, would be developed in the House through committee-led task forces. The agenda will focus on five issues: National Security, Jobs and Economic Growth, Health Care, Poverty and Opportunity, and Constitutional Authority. The Jobs and Economic Growth focus area will advance ideas to fix the tax code, the announcement said. Nunes tax reform bill: Brady said one bill that would definitely get a hearing this year is the American Business Competitiveness Act (H.R. 4377), introduced January 13 by Rep. Devin Nunes (R-CA) and a number of co-sponsors, including Rep. Pat Tiberi (R-OH) and Rep. Charles Boustany (R-LA). The bill would make radical changes to the taxation of business income, including: — a 25% top rate on the net business income of both corporations and owners of unincorporated businesses, — 100% expensing of all capital expenditure by a business and full cash accounting by corporate and unincorporated businesses, — a territorial international tax system, in which only income from business activities within the US are taxed, and repeal of the current anti-deferral "subpart F" rules with no minimum tax or other replacement anti-base erosion measures, — exclusion of interest and other financial items from the computation of net business income, and inclusion of interest income by individuals at the same tax rate as qualified dividend income if the interest is paid by US issuers, The bill would also provide businesses net operating loss carryback of five years and unlimited carryforward (with interest). Furman on innovation box: Chairman Brady has also said the innovation box discussion draft released by Reps. Boustany and Richard Neal (D-MA) over the summer would be one element of the framework for the Committee's work on international tax. Jason Furman, chairman of the White House Council of Economic Advisers, this week told the Wall Street Journal the innovation box concept is an "economically inefficient way to provide an incentive for innovation," because "a lot of the tax incentive is for research that has already happened." He said a better approach would be to expand the R&D credit, which was made permanent by the year-end tax extenders package. Furman also indicated that the President's FY 2017 Budget, to be released on February 9, may include an updated international tax proposal. SFC members on State aid investigations: A January 15 letter to Treasury Secretary Jack Lew from Senate Finance Committee Chairman Hatch, ranking Democrat Ron Wyden (D-OR), and members Rob Portman (R-OH) and Chuck Schumer (D-NY) expressed concern about State aid investigations being conducted by the European Commission and member states regarding tax rulings and advanced pricing arrangements provided to multinational businesses, most of which are US firms. The members said they are alarmed that the EU Commission is using a non-tax forum to target US firms "essentially to force its Member States to impose taxes, looking back as far as ten years, in a manner inconsistent with internationally accepted standards in place at the time." As the letter noted, Treasury Deputy Assistant Secretary for International Tax Affairs Robert Stack said during a Finance Committee hearing last month that the effort appears to be disproportionately targeting US companies to tax income that no member state had the right to tax under internationally accepted standards, potentially on a retroactive basis. The letter also asked Treasury to consider whether under Internal Revenue Code Section 891 (which would impose a double rate of tax on citizens and corporations of foreign countries engaging in discriminatory taxation) corporations are being subject to discriminatory taxation. State of the Union address: President Obama delivered his last State of the Union address on January 12, focusing more on broader concepts for the nation and less on the typical list of legislative priorities that will be difficult to enact given the limitations of the President's last year in office and an election year. The President listed expanding tax cuts for low-income workers without kids as among areas on which Americans should broadly agree. He also said the American people have a choice to make in areas where it's been more difficult to find agreement, including whether the system should favor the wealthiest and biggest corporations. The President said a more promising future will require an effort to "fix our politics," and that one of the few regrets of his presidency is that "the rancor and suspicion between the parties has gotten worse instead of better." "This is nothing short of a generational defining moment. We do not like the direction the country is going, and we have an obligation to offer an alternative. Starting today, we will begin developing a bold, pro-growth agenda to take to the country. By giving the people a clear choice in 2016, we can earn a mandate to do big things in 2017 and beyond. We want a confident America. Now it's time to get to work." — House Speaker Paul Ryan (R-WI), January 15
Document ID: 2016-0117 | |||
