February 18, 2016

Will 2016 Bring Any Movement on Tax Reform?

Armstrong Robinson, Keith Smith

“It’s clear that 2016 is going to be a critical year to lay the foundation for tax reform, and there may be an opportunity for significant international tax reform as well,”

-Chairman Brady at a Politico event in January

During the offsite retreat for Republicans January 13-15 to discuss the 2016 agenda, Chairman Brady discussed the prospects for comprehensive tax reform with Members. He followed-up that discussion with Ways and Means Republicans and their own retreat that was rescheduled due to the blizzard. Speaker Ryan and Chairman Brady have indicated that they will use the input from these meetings to decide how aggressively they wish to pursue reform in 2016.

Chairman Brady has also notified Senators Rob Portman (R-OH) and Chuck Schumer (D-NY)-leaders on international tax reform in the Senate- that he plans to continue the work of former-Chairman Ryan on international tax reform this year.

We expect that the Ways and Means Committee under the new Chairman will seek to write, if not actually vote on, key pieces of tax reform this year. Even without an obvious driver like the highway bill, pressures related to foreign acquisitions of U.S. companies, including inversions, could push tax law changes this year.

Ways and Means Member Devin Nunes introduced a significant business tax reform measure on January 13.  The American Business Competitiveness (ABC) Act would lower all (corporate and pass through) business income taxes to 25 percent. All credits and deductions would be eliminated and all depreciation schedules would disappear as the bill would provide a simple system of full expensing. The measure is not considered a trial balloon, but it has the backing of four W&M Republicans who cosponsored the bill.  It is clear that a lot of work has gone into this product.  More information on the Nunes package can be found here.

In the Senate, Finance Committee Chairman Orrin Hatch has indicated that he and his staff have been working on a proposal to end the double taxation of corporate income.  This product could be revealed in the next several weeks.

In our last session with Finance Committee Majority Staff, we discussed the concept of corporate integration and how it would treat various types of income.  The concept is covered in nearly 100 pages of a Finance Committee Staff paper located here.  Chapter 5 on Business Tax Reform provides background on corporate tax integration.  The proposal might provide for a dividend deduction in a new tax plan.

The Tax Foundation has written extensively on eliminating the double taxation of corporate income.  “Short of a complete overhaul of the tax code, integration of the corporate and individual income tax code is an option to eliminate double taxation. Many developed countries have integrated their tax systems in order to mitigate or completely eliminate the double taxation of corporate income.”

We believe that Chairman Hatch and Chairman Brady will encourage comments and discussion of their proposals through the spring.  We advise clients to participate in these efforts this year as if these proceedings will be determinative.

While we believe that this President will not entertain comprehensive tax reform or legislation which lowers individual tax rates, the tax writing committees are expected to provide serious work toward tax reform particularly in the first six months of this year.

Chairman Brady named Barbara Angus as his Chief Tax Counsel.  She has had an impressive career in tax policy most recently as an expert on international tax from Ernst and Young.  He named the final members of his senior leadership team on January 20.  The release can be found here.

Last week, Chairman Brady delivered the Keynote Address at the Tax Council Policy Institute Symposium.  In his speech, the Chairman articulated six core principles for tax reform.  You can read the full speech here.