This week (May 30 - June 3)

Congress out: The House and Senate are out of session for the Memorial Day recess.

Last week (May 23-27)

Speaker Ryan on policy agenda: During a news conference May 25, Speaker Paul Ryan (R-WI) announced that House Republicans will roll out policy blueprints developed under six issue task forces, including the Task Force on Tax Reform, one at a time during the month of June. The effort is intended to create a policy agenda for a "Confident America," intended to express that House Republicans disagree with the direction the country is going in and to provide the American people a clear choice ahead of the elections, Ryan's office said. The rollout will begin with the plan addressing poverty. Ways and Means Committee Republicans have said that the Task Force effort has delayed the Committee's work on international tax issues, but will ultimately influence any international tax reform proposal. Bloomberg BNA reported Speaker Ryan as suggesting the blueprint will touch on international tax changes, which he now sees as an issue for next year. "I believe that this is something that's going to have to get done in 2017 given where we are right now," Speaker Ryan said. "I don't think this government is capable or willing, meaning the administration and the Senate Democrats, are capable and willing to do the kind of international tax reform you need to make America more attractive and to stop capital from fleeing."

Second Finance integration hearing: Additional concerns regarding corporate integration proposals were raised during the Senate Finance Committee's second hearing on the issue May 24, held as Chairman Orrin Hatch (R-UT) readies a proposal expected to pair a dividends paid deduction with a 35% withholding tax. Former Chief Tax Counsel for Ways and Means Committee Democrats John Buckley, appearing as a witness, identified aspects of corporate integration that warrant caution and skepticism, including: limiting the effectiveness of incentives like accelerated depreciation and the R&D credit by reducing corporate tax liability; imposing new withholding taxes on foreign investors that are inconsistent with, and potentially in violation of, tax treaties; and disadvantaging start-up companies that are more likely to retain their earnings than pay dividends. Chairman Hatch attempted to "clear up some misunderstandings" from the Committee's first hearing regarding the potential for corporate integration to penalize tax-exempt entities, like retirement plans, and to deter foreign investment in the United States. He acknowledged that "there's a graveyard near the White House filled with corporate integration proposals." Democrats Ron Wyden (D-OR), Ben Cardin (D-MD), and Bob Casey (D-PA) all expressed concerns about the effect of reducing corporate tax liability on current tax incentives. Senator Mark Warner (D-VA) suggested the short-term benefit from paying dividends may increase corporations' reluctance to make long-term investments in human capital and equipment. Chairman Hatch challenged the notion that retained earnings are preferable over dividends, and suggestions that a corporate integration plan would violate treaties. Buckley said indifference or opposition from the corporate community, which may prefer a corporate tax rate reduction, played a role in defeating past integration proposals. Hatch expressed exasperation at resistance to the concept, saying the desire to "throw up roadblocks" prevents progress on tax reform. "I can't see why anybody would be against what we are trying to do here," he said.

Ways and Means Tax Subcommittee hearing: The May 25 House Ways and Means Tax Policy Subcommittee hearing on "Perspectives on the Need for Tax Reform" focused on concerns about the Administration's recent Section 385 regulations, which would treat certain related-party debt as equity for US tax purposes, and the need to both hear from and educate the public about tax reform. Chairman Charles Boustany (R-LA) said he is concerned about the competitive climate faced by US companies here as well as abroad, and that the Administration's Section 385 regulations are punitive and are hurting American companies — not just large US companies that are trying to be competitive abroad, but companies and businesses here in the United States. Rep. Dave Reichert (R-WA) also expressed concern about the regulations. Reichert additionally discussed the challenges of explaining the need for international tax reform to the public, who understand the idea of growing businesses to hire more workers to make more products but not terms like repatriation, inversions, innovation box, and dynamic scoring. "None of that makes sense," he said. Witness Douglas Holtz-Eakin, president of the American Action Forum, called for a public education campaign to convey, on a bipartisan basis, that a better tax code means a better standard of living in the United States. "If we look like we are just playing defense to hold onto things for big corporations, I don't think we are going to make the sale," Holtz-Eakin said.

Senators on EU State aid investigations: In a May 23 letter, Senators Hatch, Wyden, Rob Portman (R-OH), and Chuck Schumer (D-NY) urged Treasury Secretary Jack Lew to continue aggressive engagement with the European Commission (EC) over State aid investigations of tax rulings by Member States to US companies or their subsidiaries. "We are disappointed that, to date, EC officials generally have dismissed our concerns and continue to insist they are not targeting [US] companies," they wrote. The letter requested consideration of: whether the EC's insistence that it is not disproportionately targeting US companies is accurate; issues regarding EC rules that multinational groups cannot be given more favorable tax treatment than standalone companies; whether the investigations are based on international tax standards, either in place during the recovery period or post-BEPS; the competency of the EC Directorate-General for Competition in applying international tax standards; and implications of the EC being the final arbiter of how Members States apply international tax standards. The Senators, who previously wrote to Lew on the issue on January 15, applauded Treasury's continued efforts to urge the EC to reconsider its application of new theories of State aid retroactively toward US companies in a manner inconsistent with international tax standards.

Quote of the Week

"You could not create a more complicated, messy tax code than we have in America. And yet with this complexity also comes the problem that, out of the 34 OECD nations, we are 31st in terms of total revenue. So we have complexity, and yet vis a vis our competitors, we are at an extraordinarily low revenue rate." — Senator Mark Warner (D-VA), May 24

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