Tax Reform Update & New NSBA PolicyJune 28, 2017
On June 20, House Speaker Paul Ryan (R-Wis.) delivered a speech reiterating the principles of the House Republican tax reform blueprint and confidently forecast the enactment of comprehensive legislation this calendar year. During his speech, he touched on lower rates for both individuals and businesses, parity for pass-through entities, a shift to a territorial system for taxing foreign-source income of U.S. multinationals, and the simplification – or elimination – of current-law tax deductions and credits. Speaker Ryan emphasized that certain provisions in tax reform—such as the rates—needs to be made permanent.
Permanency is a subject that has been debated in recent weeks, as some Republicans have argued that a simpler bill focusing largely on tax cuts rather than comprehensive reform might be more easily achieved. Such cuts, without significant accompanying revenue offsets, would have to be temporary in order to meet the budget reconciliation rules that Republicans are currently planning to use for tax reform, which preclude legislation that increases the deficit beyond the budget window. In recent Congresses, the budget window has been 10 years, although there is no statutory requirement that budget blueprints cover a decade. One work-around to achieving deficit neutrality would be to lengthen the budget window beyond its current 10 years. This idea has been floated by some Republicans and was backed by Senate Finance Committee Chairman Orrin Hatch (R-Utah), however, this approach is opposed by both Speaker Ryan and House Ways and Means Committee Chairman Kevin Brady (R-Texas).
Notably, Speaker Ryan did not specifically mention in his speech the proposed border-adjustment tax – which would tax all products and services imported into the U.S. at a rate of 20 percent while exempting all U.S. exports from taxation. Although, the border adjustment tax proposal has been unofficially estimated to raise about $1.2 trillion to offset the cost to lower the corporate tax rates—in its current form—has faced opposition from many congressional Republicans and the White House.
Meanwhile, as part of the Senate’s work to develop its own ideas, Chairman Hatch issued a call to stakeholders for comments on tax reform. Hatch indicated he is particularly interested in recommendations to:
- Provide relief to the middle-class individuals and families through reforms to the individual income tax system;
- Lower business tax rates and broaden the tax base;
- Remove impediments and disincentives for savings and investment in the current tax system; and
- Update our international tax system to make the US more competitive globally and preserve the US tax base.
Interested parties are requested to provide comments by July 17 to email@example.com.
One of the main goals of fundamental tax reform is to make U.S. businesses more competitive and to increase economic growth. This requires a reduction in taxes on businesses and investment. In order to achieve this, the NSBA Board of Trustees recently endorsed the following tax reform policy proposals. NSBA supports a broad bipartisan overhaul of the tax system by dramatically broadening the base—cutting the breaks that litter the tax code—and lowering rates while maintaining revenue neutrality. As Congress debates what tax system should replace the current one, NSBA believes it is imperative that the U.S. moves towards a simpler, fairer tax system that does not attempt to only tweak one piece of the puzzle but instead is a permanent solution. NSBA supports:
- Lower individual tax rates commensurate with corporate rate cuts. Congress should provide the same rate for all businesses whether organized as C corporations or pass-through entities.
- Qualified Personal Service Corporation income should flow out at individual tax rates.
- Allow businesses to immediately deduct the full cost of qualified capital investments, with interest deductibility for those with gross receipts under $10 million.
- Repeal the Alternative Minimum Tax and the Estate Tax to help small business owners pass their companies down to the next generation without the same tax burdens they face today.
- Enact destination-based cash flow tax that provides for “border adjustments” that would eliminate U.S. tax on products, services, and intangibles exported abroad and impose a 20 percent U.S. tax on products, services, and intangibles imported into the U.S.
Click here to download the full NSBA Tax Reform Issue Brief.