10 June 2016 EY Center for Tax Policy: This Week in Tax Reform for June 10 The House is expected to consider Rep. Peter Roskam's (R-IL) Preventing IRS Abuse and Protecting Free Speech Act (H.R. 5053) to prohibit the Internal Revenue Service from requiring a tax-exempt organization to include in annual returns the name, address, or other identifying information of any contributor, with exceptions. Finance Committee energy hearing: On Tuesday, June 14 (at 10 a.m.), the Senate Finance Committee will hold a hearing, "Energy Tax Policy in 2016 and Beyond," to examine energy tax provisions. "As the Committee continues to chart the course towards a comprehensive overhaul of the tax code, a thorough review of energy tax provisions is a must," Chairman Hatch said. "With this hearing, members of the Committee will have the opportunity to explore how the code affects the energy industry and what policies have the most merit as we look forward towards tax reform." Witnesses: — Benjamin Zycher, John G. Searle Chair and Resident Scholar, American Enterprise Institute, Washington, DC Finance 'digital age' hearing: On Wednesday, June 15 (at 2 p.m.), the Finance Committee will hold a hearing on "Challenges and Opportunities for U.S. Business in the Digital Age." Chairman Hatch said the hearing will examine problems facing businesses, including the importation of counterfeit goods, as well as explore opportunities the digital marketplace presents for small businesses. Witnesses have not been announced. Brady on member tax proposals: House Ways and Means Committee Chairman Kevin Brady (R-TX) continued to suggest that the Committee may consider Member tax proposals that are separate from tax reform efforts and the forthcoming House Republican blueprint on comprehensive reform. "We are evaluating a package of tax bills to move forward," Brady said, adding that the miscellaneous tax package could be developed by either the end of summer or the lame-duck session after the November elections, Tax Notes reported June 9. The Ways and Means Tax Policy Subcommittee May 12 held a hearing on Member proposals for improvements to the tax system that included testimony about legislation addressing charity, research, energy, student loan, and alcohol tax issues, among others. Blueprint on poverty: The rollout of House Republican blueprints as part of the "Better Way" campaign to provide voters clear policy choices ahead of the November elections began with the June 7 release of a policy report addressing poverty. The report noted the "complicated interaction between wages, tax benefits, and welfare benefits" and the fact that, because the Earned Income Tax Credit increases the financial rewards of work, increasing the EITC "would help smooth the glide path from welfare to work." The report recommended addressing the high improper payment rate associated with the EITC through the better use of information technology. "It is estimated that 30% of EITC's improper payments, or $4.35 billion, are from income verification errors alone," the report said. "Fortunately, there are data systems that agencies can use to identify thieves, prison inmates, fugitives, people with significant earnings, people with significant savings, or others who simply should not be collecting these benefits." The report also included a section on retirement security. Energy extenders and FAA: Discussed during the May subcommittee hearing on Member tax proposals was legislation to extend credits for energy technologies left out of the 2015 tax legislation. Sponsors of such legislation, including Reps. Tom Reed (R-NY) and Pat Meehan (R-PA), have said they are looking for a way to have the extensions included in the reauthorization of Federal Aviation Administration (FAA) programs and revenue provisions that will be required ahead of the current expiration on July 15, Politico reported. With the provisions inadvertently left out of last year's bill, "it's not as if there is new ground that needs to be broken, there was an agreement in the House and Senate on the principle and we're simply looking for a vehicle to fix it," Meehan said. Additionally, Senate Finance Committee Ranking Member Ron Wyden (D-OR) told reporters June 7 that he is looking at "every possible opportunity" to move the excluded energy credits. Efforts to include the provisions in the Senate FAA bill (H.R. 636) approved in April were unsuccessful. House Transportation and Infrastructure Committee Chairman Bill Shuster (R-PA) signaled June 9 that he is not interested in moving the Senate bill or a short-term extension of current funding. AEI event: During a June 7 American Enterprise Institute event on "U.S. Corporate Tax Reform in 2017: Exploring the Options," Christopher Hanna of the Senate Finance Committee Republican staff said that a corporate integration plan with dividends paid deduction can be viewed as a corporate tax rate cut without having to touch provisions that are strongly supported by the business community, such as accelerated depreciation, the R&D credit, and deductibility of advertising expenses. Identifying which of the current corporate tax benefits should be eliminated to offset the cost is a major impediment to a corporate rate reduction through base broadening, he suggested. Hanna's comments come as Finance Committee Chairman Orrin Hatch (R-UT) readies a corporate integration proposal that is expected to pair a dividends paid deduction with a 35% withholding tax for dividends and interest. Hanna said the concept of corporate integration is supported by corporations; which method to use is the only source of disagreement. The dividends paid deduction method coupled with a withholding tax is the method that seemed to catch the attention of corporate America, he said. Such an approach comes very close to equalizing the tax treatment of debt and equity, Hanna said, and could alleviate the lock-out effect — under which US-based multinational corporations consider their foreign earnings trapped overseas — by allowing companies to repatriate foreign earnings as a dividend and get a deduction. He acknowledged some difficulties with the dividends paid deduction, including distributional issues, possible treaty override issues, and the issue of tax-exempt shareholders and bondholders, but expressed confidence that they can be adequately addressed. Finance Democrats' inversion, international proposal: Following on Senator Wyden's February announcement that he was working on a legislative package to address several topics related to inversions, Finance Committee Democratic Tax Counsel Todd Metcalf said June 9 the package would likely be unveiled during the summer, Bloomberg BNA reported from its transfer pricing conference co-sponsored with Baker & McKenzie LLP. "Some pieces of it are anti-inversion, other pieces are what I would describe as mini-reforms of the international system that might lessen the incentives to invert," Metcalf said. "The last 12 months, I think, have illustrated how much Swiss cheese there is in our tax code and the ability of taxpayers to exploit loopholes. That's why there's been less focus on exactly where tax reform is going to go." — House Ways and Means Committee Ranking Member Sander Levin (D-MI), in a June 6 Wall Street Journal story
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