23 March 2016 Ways & Means Subcommittee holds hearing on cash-flow, consumption tax bills The House Ways and Means Tax Policy Subcommittee hearing on March 22, 2016, the first in a series of hearings addressing tax reform proposals by members of Congress, focused on cash-flow and consumption-based approaches to taxation, including the American Business Competitiveness (ABC) Act (H.R. 4377) sponsored by Rep. Devin Nunes (R-CA). Tax Policy Subcommittee Chairman Charles Boustany (R-LA) said the next members' day tax reform hearing, on April 13, will focus on income-based approaches to taxation. "These are important ideas, in which our colleagues have invested an enormous amount of time and energy," he said of the bills discussed. "And it shows the seriousness of their commitment to the effort to develop a pro-growth tax system for the 21st century." The Nunes bill to tax business income on a cash flow basis, introduced in January, would make major 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 expenditures 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 is taxed, and repeal of the current anti-deferral "subpart F" rules with no minimum tax or other replacement anti-base erosion measures; and Rep. Michael Burgess (R-TX) discussed his bill, the Flat Tax Act (H.R. 1040), which would give businesses and individuals the choice to opt-in to a 17% flat tax and to be taxed on a cash-flow basis for business activities. Rep. Robert Woodall (R-GA) testified regarding his bill, the FairTax Act of 2015 (H.R. 25), that would replace all federal income, payroll and withholding, and estate and gift taxes with a national sales tax on gross payments of taxable property or services. Burgess and Woodall noted the long history of both of their proposals, including former Majority Leader Dick Armey's (R-TX) endorsement of a flat tax. During questioning from Chairman Boustany about the current use of debt financing and associated problems, Rep. Nunes said a real consumption tax cannot allow for deductibility of interest expense. No one really knows what will happen under his bill because nothing like it has been attempted, he said, though current business models would change under the bill because the focus will be on what to invest, not how to structure a company. Boustany further asked about the timing of the proposals in terms of whether the Committee should pursue tax reform along the lines of the 1986 Act or move to something different. Nunes said his bill reflects a focus on what is actually achievable: Republicans and Democrats agree on the need to switch to a consumption-based tax system and some type of territorial system. Rep. Jim Renacci (R-OH) expressed concern that the Nunes bill would amount to picking winners and losers in that those who can afford to capitalize a business would be able to immediately expense the purchase of property, while a small business owner who relies on debt financing would not be able to deduct interest expense. Nunes said the ABC Act should not be looked at through the lens of an income tax, and that those who raise the point about interest expense do not realize the bill would do away with the income tax for all business activity and convert the system to a consumption tax. Rep. George Holding (R-NC) inquired about transition relief. Rep. Nunes said he has spent a lot of time thinking about that issue and that he expects affected businesses will request the necessary transition relief.
Document ID: 2016-0555 | |||||
