15 July 2016 EY Center for Tax Policy: This Week in Tax Reform for July 15 Chairman Brady on C-SPAN: In an appearance on C-SPAN's Newsmakers July 8, House Ways and Means Committee Chairman Kevin Brady (R-TX) said the meeting he attended between Speaker Paul Ryan (R-WI) and presumptive Republican presidential nominee Donald Trump, which included discussion of the House GOP "Better Way" agenda, was very positive. "I feel like on the area of tax reform and how we get the economy going, there's a lot of common ground with Mr. Trump," Chairman Brady said. He said it appears Trump's tax reform proposals are very similar to those put forward by House Republicans, and downplayed the differences in rates, saying they "don't have to match perfectly." Trump has proposed a 15% corporate income tax rate, 15% rate for pass-through entities, and individual rates of 10%, 20%, and 25%; the House Republican Blueprint on tax reform released June 24 proposed a 20% corporate income tax rate, 25% rate for pass-through entities, and individual rates of 12%, 25%, and 33%. "We redesign how we tax so we leapfrog from dead last in the world to one of the leading packs of best countries for pro-growth tax codes," Brady said. Asked about next steps for the Blueprint, Chairman Brady said Members will receive feedback from taxpayers and businesses, put pen to paper, and work on transitions. "Going from an old car that doesn't go very fast to a new car that drives differently — there will be a transition to that," he said. On prospects for the plan if Hillary Clinton is elected President, Chairman Brady said tax reform must be bipartisan in order to become law, and many Democrats are aware that the United States can no longer compete globally under the current system. "Regardless of who is president, we're going to advance what we call 'built for growth' tax reform," he said. Asked about working with Senate Democrats on an international-only tax reform proposal, Chairman Brady said, "It's not out of the question that we could come together in that area," though it is unclear whether it could happen this year. With regard to the Treasury Department's proposed Section 385 regulations, which were the subject of a July 14 IRS public hearing, Chairman Brady said, "My worry is — and it's a bipartisan worry — that they rush into this rule that has huge economic consequences at home. They miss the target and don't really solve it and in fact make us less competitive, which means you have missed the mark in every way." Renacci proposes business activity tax: Ways and Means Committee member Rep. Jim Renacci (R-OH) released a tax reform white paper July 14 calling for eliminating the corporate income tax in favor of a consumption tax in the form of a 7% business activity tax. Under the Simplifying America's Tax System (SATS) plan, pass-through entities could elect to be treated as a corporation for the zero percent rate and all business income would be subjected to only one level of income taxation, consistent with corporate integration. "In other OECD countries, this is typically known as the credit-invoice value-added tax (or goods-and-services tax), a measure that raises revenue with significantly less economic damage than the corporate income tax," the white paper said, adding that the business activity tax is similar to the consumption tax plan introduced by Senator Ben Cardin (D-MD). "Under the credit-invoice method, businesses collect tax on all of their sales, but that tax is reduced in the form of a credit for tax paid on purchases (i.e. inputs) invoiced from other firms." The SATS plan would implement a one-time tax on accumulated foreign earnings held abroad by US-based companies at 8.75% for profits held as cash and cash-equivalents and 3.5% on other assets — the same rates proposed by both the House Republican Blueprint on tax reform and former Ways and Means Committee Chairman Dave Camp's (R-MI) Tax Reform Act of 2014. Renacci's white paper said revenue generated from the transition tax would be dedicated to the Highway Trust Fund, and that a territorial system of taxing foreign earnings would be unnecessary because of the 0% corporate income tax. For individuals, the plan would reduce the current seven marginal income tax brackets to three: 10%, 25%, and 35%. All itemized deductions would be eliminated except those for charitable contributions and mortgage interest up to $500,000 of debt, and the alternative minimum tax would be repealed. Renacci is seeking comments on a host of issues related to the plan, which he views as an alternative to the recently released House Republican Blueprint on tax reform. FAA bill: The Senate July 13 approved by an 89-4 vote a House-passed Federal Aviation Administration (FAA) extension through September 30, 2017 (FAA Extension, Safety, and Security Act of 2016, H.R. 636), sending the measure to the President. An effort to include tax provisions such as extensions of tax credits for energy technologies said to be inadvertently left out of the 2015 tax legislation was unsuccessful, though members such as Senate Finance Committee Ranking Member Ron Wyden (D-OR) are hopeful there will be other opportunities. "Odds are certainly in favor of there being an end-of-the-year package that involves taxes," Wyden said, as reported by Politico. "I've heard from members of both parties that there are a handful of extenders that they hope will go in at the end of the year, so I'm expecting that. And of course, I do feel strongly that those handful of renewable energy incentives ought to get done, because all sides acknowledge it was an omission." Finance Committee Chairman Orrin Hatch (R-UT), however, said he is "not very enthused" about revisiting the provisions, echoing previous comments by Ways and Means Chairman Brady. Section 385 regulations: Assistant Secretary of the Treasury for Tax Policy Mark Mazur said at a July 14 Tax Policy Center event that comment letters on the Section 385 regulations have pointed out "some of the possibly unintended consequences, things that we'd like to try and fix," Politico reported. Mazur acknowledged that the rules are a "blunt instrument" in fighting tax avoidance, an issue that the Administration would have preferred to see addressed through legislation. During the public hearing on the regulations the same day, witnesses told the Treasury and IRS panel of the many problems associated with the proposed regulations package, but were generally met with no comment. The government panel also did not provide any insight as to when it expects to finalize the proposed regulations. Integration plan still on hold: Chairman Hatch signaled that the corporate integration proposal he is developing, which is expected to pair a dividends paid deduction with a 35% withholding tax for dividends and interest, is still being analyzed by the Joint Committee on Taxation and will likely be delayed until later in the summer. "It's apparent we're not going to do much on it until we get back," Hatch said July 13 as the Senate was preparing to head out for the summer recess, Tax Notes reported. CBO Long-Term Budget Outlook: Without changes in taxes and spending, the United States faces "steadily increasing" federal budget deficits and debt over the next 30 years that will push federal debt held by the public from 75% of GDP currently to 86% in 2026, and to 141% of GDP in 2046, the Congressional Budget Office said in its 2016 Long-Term Budget Outlook July 12. CBO said a crucial factor in the long-term outlook is government spending for Social Security and Medicare, programs that accounted for almost 40% of the government's noninterest spending, on average, for the past 10 years. "Much of the spending growth for Social Security and the major health care programs results from the aging of the population: As members of the baby-boom generation age and as life expectancy continues to increase, the percentage of the population age 65 or older is anticipated to grow sharply, boosting the number of beneficiaries of those programs," the report said. Another factor is interest on the government's debt. CBO projected revenues as a share of GDP would be roughly flat over the coming decade, fluctuating between 18% and 18.2% of GDP. If lawmakers wanted to maintain the current 75% of GDP level of federal debt held by the public, they would need to cut noninterest spending or increase revenues, or a combination of both, by 1.7% of GDP annually, or about $330 billion in 2017 and $4 trillion through 2026, CBO said. CBO projects that, under current law, the two Social Security trust funds combined would be exhausted in 2029. The report said the Hospital Insurance Trust Fund, a commonly used measure of the sustainability of Part A of Medicare, is projected to become exhausted in 2026. House Budget Committee Chairman Tom Price (R-GA) issued a statement saying in part: "One wonders how anyone can look at this report and not feel compelled to take action." "A simple corporate rate reduction near the OECD average won't stop companies from relocating overseas or being acquired by foreign companies located in jurisdictions with more pro-growth tax regimes. That said, it's disingenuous to compare our corporate income tax rate to other OECD countries without also mentioning the fact that we're the only OECD country without a national-level goods and services tax. While there's no good way to tax, SATS is a bold pro-growth solution to business tax reform that will make our tax system the most competitive in the world." - Rep. Jim Renacci (R-OH), July 14
Document ID: 2016-1237 | |||||||||||||||
