The path to tax reform has proven to be much more treacherous than the pundits predicted when the Republicans won control of both ends of Pennsylvania Avenue back in November. The deep ideological divisions among House Republicans were exposed by their failure to reach consensus on a replacement for the Affordable Care Act and remain an impediment to reaching agreement on tax reform. Even before the House Ways and Means Committee can release and mark up a tax reform bill, however, Congress must pass legislation to keep the government funded beyond April 28 and then pass a Budget Resolution for FY 2018. The President has also called for another attempt to pass a replacement for the Affordable Care Act. The calendar is running, and only 47 legislative days (Congressional parlance for working days) remain before Congress breaks for the August recess. With hearings on tax reform in the Ways and Means Committee scheduled to begin in late April and proceeding well into May, it will be a tall order for Ways and Means Committee Chairman Kevin Brady (R-TX) to meet his self imposed deadline of passing a bill sometime in the Spring.
While the House wrestles with its own issues, the Senate Finance Committee has settled into behind the scenes staff discussions and meetings on various tax reform options. Senate Finance Committee Chairman Orrin Hatch’s favored approach to corporate tax reform, the dividends paid deduction (DPD) corporate integration proposal, is still in the mix but remains unpopular with his fellow Committee Republicans. That proposal would allow corporations to deduct all of their dividends and would impose a withholding tax on dividends paid to all of their shareholders. Incentivizing corporations to pay out their earnings as dividends would potentially reduce the attraction of tax favored investments like the R&D and low income housing tax credits.
In view of the lack of consensus on Capitol Hill as to overall tax reform, Republican Leadership in Congress and the Trump Administration would be wise to take a page from President Reagan and keep it simple. President Reagan proposed in 1981 to lower the tax rates and allow for more rapid depreciation of machinery, plants and equipment. Congress gave him essentially what he asked for. It was not until two tax increase bills passed in 1982 and 1984 that President Reagan and Congress took up and passed tax reform in 1986. It would be wise for the Republicans to focus on where there is general agreement — even with Democrats — and come up with a proposal that lowers the top corporate rate, lowers the rate for pass throughs, allows for expensing of assets and provides for the repatriation of corporate earnings at a low rate such as 10 percent. A portion of the taxes raised from repatriation could be directed to infrastructure. Forget about making the bill revenue neutral. The object is to get the economy moving again.
James F. Miller
Tax Legislative Solutions, LLC
Phone: 202 489 3711