17 February 2016 Ways & Means Republicans criticize budget proposals House Ways and Means Committee Republicans on February 11, 2016, criticized a number of elements of the President's FY 2017 Budget, including suggesting that a new proposal to expand the reach of the 3.8% net investment income tax to additional pass-through business income of high-income taxpayers is an ill-timed tax hike on small businesses. They did, however, agree with Treasury Secretary Jack Lew at a hearing on the Budget that the two sides would work to try to reach agreement on business tax reform, particularly international tax rules, despite differing views on some details. In an opening statement, Chairman Kevin Brady (R-TX) said he is absolutely opposed to the proposal to "impose significant new taxes on small businesses" by expanding the net investment income tax to all small business income. "Instead of finding new ways to add additional tax burdens on our small businesses, this Administration should do everything possible to encourage Americans to start small businesses, hire new workers, and build the success stories of tomorrow," he said. "This new tax hike is another proposal that will not see the light of day in this Congress." Rep. Dave Reichert (R-WA) expressed concern about the increase in capital gains taxes generally under the Budget, which proposes increasing the top rate from 20% to 24.2%, plus the 3.8% net investment income tax. "I don't understand how you can raise taxes and create a growing economy and create jobs," he said. Secretary Lew noted that whether to organize as a pass-through or a corporation is a choice that businesses make. Members also continued to criticize the Budget's proposed $10.25 per barrel fee on oil that would be paid by oil companies. As he did in testimony before the Senate Finance Committee, Secretary Lew said business tax reform is the ideal way to address inversions, though legislative action should be taken on the issue even if bipartisan agreement on a broader proposal cannot be reached. Lew said the proliferation of inversions is one of the consequences of the delay on business tax reform. Chairman Brady said he worries the United States is becoming more and more isolated in its tax policies, but senses that Chairman Lew is committed to working with lawmakers on such issues. "I consider this a year of work," Lew said. Ranking Member Sandy Levin (D-MI) said Democrats are "ready and willing to join" Republicans in a tax reform effort, as is the Administration. "But closing some of the most egregious loopholes cannot wait for tax reform," Levin said. "Corporations leaving the U.S. through inversions are costing us tens of billions of dollars, and place an increasing burden on the rest of the taxpayers." Levin said he would be introducing legislation related to earnings stripping with regard to inversions. Lew said the Administration would be looking at what it can do on earnings stripping, but does not "have a very sharp scalpel" in terms of options to act administratively. Rep. Lloyd Doggett (D-TX) echoed Levin's sentiments, saying the need for tax reform should not be used as an excuse to allow multinational companies to escape the taxes they owe now. As he did during a previous hearing, Doggett raised the idea of an exit tax on inverting companies, an idea that has been proposed by Democratic presidential candidate Hillary Clinton, and that Doggett said he will include in forthcoming legislation. Doggett suggested that the increase in the revenue estimate for the Administration's 19% minimum tax proposal to $350 billion/10 years from $206 billion in last year's budget illustrates the magnitude of income held overseas. "That's a huge amount. It's grown substantially since last year, it will continue to grow," he said. The Treasury Secretary also mentioned a letter he sent to the President of the European Commission (EC) today echoing concerns expressed by Treasury Deputy Assistant Secretary for International Tax Affairs Robert Stack during a December 1 hearing, that state aid investigations are disproportionately targeting US companies for income that Member States have no right to tax under well-established international tax standards, in an approach that could undermine US tax treaties with EU Member States. Chairman Brady commented, "I appreciate the letter that you sent, because what the EU is doing is going beyond simply addressing the income shifting, it is a money grab targeted on US companies in a variety of ways, not just to generate revenue but to make it more uncompetitive for US companies to compete around the world." Tax Policy Subcommittee Chairman Charles Boustany (R-LA) said he too appreciated the letter and that it is important for the Treasury Secretary to "step up on the economic diplomacy side to promote our American companies in an unfair environment right now." He mentioned his BEPS-related legislation (H.R. 4297) that, driven by concerns that some companies will be treated unfairly with regard to master file requirements, would give Treasury more tools to deal with the issue by potentially withholding country-by-country reports when necessary and using that as leverage. Lew said the Administration will look at all tools at their disposal but is not familiar with the proposal. Rep. Boustany said his panel is committed to working on international tax reform with urgency given problems with the OECD BEPS project, state aid investigations, a hostile tax environment, and mergers, acquisitions, and inversions that are discussed ad nauseam. "It's time for action. We need a commitment from you to work with us on this Committee to do this," he said. Boustany said the country is in need of an international tax policy that frees up capital and brings it back to the United States; lowers the corporate tax rate to something really competitive; moves to a dividend exemption system; tries to deal with base erosion in a fair way; and looks at some sort of patent/innovation box. Lew said he is committed to working together to get business tax reform done by lowering rates, closing loopholes, using one-time revenue to pay for infrastructure investment, and closing down inversions. He admitted that there some ideas he has problems with. "We are not going to pretend that we love the patent box idea," he said. Document ID: 2016-0334 |
