Earlier this month, House Ways and Means Committee Republicans began a series of focused meetings to advance the release of a tax reform bill for consideration by the committee this fall. While Committee Chairman Dave Camp (R-MI) has suggested additional drafting remains to be completed before release of a bill, the Committee staff is believed to have penned considerably more than the previously released discussion drafts on international corporate taxation, financial products and passthrough entities.
Some Committee Democrats, including Ranking Member Sander Levin (D-MI), have criticized the Chairman for not including them in these meetings, but Committee Republicans have suggested that the Chairman is simply first ensuring consensus within his own party before reaching out to Democrats. Others, however, insist that Camp has not yet been successful in securing Democratic support for the type of “revenue-neutral” approach to tax reform that he has promised to produce and, therefore, bipartisan discussions at this stage would be unproductive. Nonetheless, there are Democrats who have advocated the pursuit of comprehensive tax reform, and we believe Chairman Camp would welcome their support.
These Republican Member meetings are the latest in a series of steps that Chairman Camp and Senate Finance Committee Chairman Max Baucus (D-MT) have taken in preparation for moving large-scale tax reform. Earlier this year, both the Senate Finance and House Ways and Means Committees forged ahead on options for tax reform, convening closed-door sessions that produced options papers on the Senate side and structuring bipartisan working groups for public input on the House side. Further, in recent months, the Chairmen have embarked on a “Simpler Taxes for America” tour, visiting businesses across the country in an effort to build public support for reform.
While the timing for comprehensive reform remains uncertain, we expect both Chairmen, and a number of senior Congressional leaders, to look for ways to accelerate the tax reform process. For example, Chairman Camp and many House Republicans have indicated that legislation to raise the nation’s debt limit, which is necessary in mid-October, should include binding instructions compelling a tax reform process to occur in a time certain.
Again, while the prospects of enacting tax reform remain uncertain, the mere release of an actual tax reform proposal by the Chairman of the House Ways and Means Committee will lay a marker and begin serious discussion, jockeying and lobbying by any sector of the economy affected by the proposal. Given current dynamics, it is imperative to plan as though tax reform could occur in the near term and be in a position to respond to a bill that Chairman Camp releases before the Ways and Means Committee acts.
We understand that Chairman Camp is seeking to propose a bill that substantially reduces corporate income tax rates, reduces individual income tax rates and adopts a move toward a territorial income tax system. To accomplish those goals, the Chairman will need to propose eliminating a variety of tax credits and preferences and make other changes in current tax law. The following is a list of tax law changes that have been identified from time to time as ones that can be used to pay for revenue neutral rate reduction.
- Eliminating or reducing deferral of active income of controlled foreign corporations (CFCs)
- Extending asset lives for depreciation of equipment and/or changing accelerated methods of computing depreciation
- Eliminating or cutting back the research and development credit and expensing of research and experimental expenditures
- Eliminating the deduction for income attributable to domestic production activities
- Eliminating or limiting the deductibility of home-mortgage interest
- Eliminating or reducing the benefit of the exclusion of interest on public purpose State and local government debts and/or qualified private activity bonds that are currently eligible for exemption
- Eliminating the credit for low-income housing
- Changes in inventory methods and valuation (LIFO accounting)
- Elimination of deferral of gain on like-kind exchanges
- Eliminating the exclusion of investment income on life insurance and annuity contracts
- Eliminating or cutting back on the deductions for charitable contributions
- Repealing the exclusion from tax for earnings of qualified tuition programs
- Eliminating or reducing the exclusion from income for benefits provided under cafeteria plans
- Eliminating or reducing the exclusion from income for employer contributions to health care, health insurance premiums and long-term care insurance premiums
- Eliminating or reducing the deduction for health insurance premiums and long-term care insurance premiums by self-employed
- Eliminating net exclusion for pension contributions and earnings, including reducing or eliminating tax benefits for employer-based programs and individual retirement arrangements
These are not necessarily changes that Chairman Camp is considering. However, they could come under consideration at any point during the debate. Potential changes that are not in the Chairman’s mark could be introduced by other members of the Ways and Means Committee to pay for the retention of provisions of the law that Chairman Camp proposes to change.
Soon after Chairman Camp releases his bill, Patton Boggs will hold a webinar to educate clients on the contents of the bill, the Committee’s schedule for consideration of the bill, and the best ways to influence the content of tax reform legislation. To reserve your spot for the webinar today, please email Katie Iobst at email@example.com.