House Ways and Means Committee Chairman Kevin Brady (R-TX) said during an Urban Institute-Brookings Institution Tax Policy Center event on February 25, 2016, that he is not sure how far the Committee can get in advancing an international tax reform proposal as an element of broader reform, but they are going to make an effort given the impact of global tax developments on jobs and communities. Also during the event, Senate Finance Committee Ranking Member Ron Wyden (D-OR) suggested that he would be open to moving toward a territorial system of taxing foreign earnings, with certain caveats, and said that he is readying proposals to address the taxation of financial instruments and simplify depreciation rules.

Chairman Brady's comments followed an address to the event, titled "Tax Policy in 2016: What's New and What's Next," during which he continued to list principles for the Committee's tax reform effort. He said the charge he laid out for the Committee shouldn't aim to place the country in the middle of the pack but in the lead, and that he has encouraged members to be bold in their thinking. "Just tweaking the tax code we have today simply won't cut it," he said, adding that it is more politically difficult to do a mediocre tax reform than a comprehensive plan that generates excitement.

Chairman Brady again described international tax reform as a critical first step toward comprehensive reform, and an urgent priority. He said the blame for the current situation of companies moving overseas or being acquired by foreign competitors is split between the out-of-touch US tax system and actions taken by other countries, like the OECD BEPS project that could force companies to restructure operations and move R&D overseas.

Asked about comments from an earlier panel by G. William Hoagland, Senior Vice President at the Bipartisan Policy Center, suggesting that the populist tone of the presidential election may make it difficult to act only on international tax issues this year without addressing individual tax reform, Brady said the trend of companies leaving the United States is worrisome to everyone. In response to a question about how tax cuts proposed by some Republican candidates could be handled in Congress, Brady said he was just encouraged that each of the candidates has a serious tax reform proposal.

Repeating a theme from yesterday's international tax hearing in Ways and Means, Chairman Brady said the direct result of global tax developments is the loss of jobs, and because companies that are pushed overseas have local suppliers there is a negative impact that ripples through local economies.

Asked about how revenue from a one-time tax on overseas income as part of international tax reform should be allocated, Brady said members should focus first on getting the policy right, then decide what to do with the money. He repeated that he would want revenue to go toward lowering rates but said if the plan is to be bipartisan other members have their own ideas, alluding to support by Democrats for repatriation revenue being allocated to infrastructure investment.

On the particulars of international tax reform, Brady said the innovation box proposal has worked in Europe and while an initial draft of a proposal last year was received with only an "OK response," members get smarter with the release of every tax reform-related draft. Asked whether there is any way to have an international effort to make sure companies pay taxes somewhere, Brady said the BEPS project was focused on exactly that point. He suggested that international cooperation on taxes can only go so far, however, saying of other nations, "They are not lowering these rates for fun."

Despite the broad jurisdiction of Ways and Means, Brady said he is not a fan of the grand bargain approach that would combine entitlement changes with tax reforms. Each of those areas is substantive and difficult, and a deal could easily collapse under its own weight, he said.

Wyden on international tax, new proposals

Senator Wyden laid out his own principles for international tax reform, including: making the US corporate tax rate competitive again; making the system attractive to investment and rewarding those who create jobs; and yielding revenue for infrastructure investments. "In my view, an international tax reform plan built around those principles is a territorial system without the gaming," said Wyden, who as recently as 2011 proposed repealing deferral of foreign earnings without moving to a territorial system.

"The right set of anti-abuse rules can crack down on mind-numbing strategies like the 'double Irish with a Dutch sandwich' and end the race to the bottom. A code that eliminates barriers to investment and helps the U.S. compete will strengthen our economy and create good-paying jobs," Senator Wyden said. "And as long as the rules are tough and there's revenue on the table for infrastructure, this is a proposal I believe can bring the parties together." He noted that Senators Chuck Schumer (D-NY) and Rob Portman (R-OH) agreed to such a framework in the context of the Committee's tax reform working groups last summer.

Like other members, Wyden noted that election-year politics "make a major tax overhaul of any kind extremely unlikely." Still, he said, Congress cannot afford to wait until 2017 to address challenges like inversions and base erosion.

Senator Wyden said he is working on legislation that goes after the issue of "how tax pros game the system with sophisticated financial instruments," building on a report he released last year. Last year's report addressed issues such as collars, wash sales, derivatives, basket options, and deferred compensation. "It's all about ending this two-tiered system, creating greater parity between taxes on wages and wealth, and cleaning out the complicated web of rules and loopholes that is extraordinarily unfair to typical working taxpayers," Senator Wyden said today.

Lamenting the complexity of current depreciation rules, Wyden said, "Instead of 100 sets of depreciation rules, I want to get down to a handful that's easy to work with. And businesses will be able to average out the useful life of their equipment instead of having to use a separate schedule for every item in their inventory."

During a Q&A session, Senator Wyden was asked about the tax gap and referenced comments he made during Committee hearings earlier this month that the corporate tax gap amounts to $60 billion-$70 billion annually. Wyden said he has asked IRS and Treasury to focus on the issue and produce a report in the coming months.