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The House Ways and Means Committee Chairman Speaks
By Children’s Home Society of Florida Foundation
On October 26th 2011, House Ways and Means Committee Chairman Dave Camp (R-MI) proposed a comprehensive tax reform of corporate taxes. He stated that the present “outdated” tax system discourages employers from hiring in America and transfers jobs overseas.
Camp noted, “If we are serious about creating a climate for job creation, now is the time to adopt tax policies that empower American companies to become more competitive and make theUnited States a more attractive place to invest and create the jobs this country needs.”
The Specifics
The discussion proposal specified the changes that Camp would make in the corporate tax system:
1. Corporate Tax Rate – The top rate would be reduced from 35% to 25%. The rate reductions would be accomplished through major changes in corporate tax deductions for depreciation, depletion and other items.
2. Territorial Tax System – The “worldwide” system of taxation was created five decades ago and the U.S. should move to a territorial tax system similar to that used by most other industrial nations.
3. Repatriation – There would be a 95% exclusion for overseas earnings brought back to America. At present, many large American companies have billions of dollars in cash and investments that are held overseas to avoid U.S. corporate taxes.
4. Anti-Abuse Rules – There would be multiple rules and guidelines to preclude companies avoiding a payment of their fair share of tax.
5. Global Competition – An updated tax system for corporations would encourage American companies to hire U.S. citizens and make them more competitive on a global basis.
The prime concern that Camp expressed is that all of the industrial nations in Europe and Asia (except Japan) have reduced their corporate tax rates during the past decade. The comparatively higher U.S. corporate tax rates place our companies at a disadvantage and encourage movement of jobs overseas.
Assessment
One major concern with the reduction in rates is that manufacturing corporations will pay higher taxes because of the loss of their various deductions.
Ways and Means Committee ranking member Sander Levin (D-MI) noted, “Lowering the top corporate tax rate to 25% without adding to the deficit would require repealing key provisions that strengthen domestic manufacturing and encourage American innovation and investment.”
He also expressed concern that lowering the corporate rates could cause a shift in the tax burden to individuals.
Editor’s Note: It is a very long path to major tax reform. The main debate between the parties is whether or not tax reform should be revenue-neutral or produce higher revenue. Comprehensive tax reform will await a resolution of this debate in Congress.
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Filed under: Taxation | Tagged: Children's Home Society ofFloridaFoundation, comprehensive tax reform, Corporate Tax Rates, Corporate Tax Reform, David Camp, House Ways and Means Committee, Repatriation, Sander Levin |
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Boehner Predicts No Major Tax Reform
The Joint Select Committee on Deficit Reduction continues to meet daily in its efforts to find a deficit solution. If seven of the 12 Supercommittee members do not agree on a solution that meets the $1.2 trillion or greater standard, then automatic spending reductions take effect. Over 10 years, there could be $600 billion in Defense Department reductions and $600 billion in reductions in payments to Medicare providers.
Speaker of the House John Boehner (R-OH) stated on October 27 that he does not expect the Joint Select Committee to recommend major tax reform. He stated, “I’ve never believed the Supercommittee could rewrite the tax code. I think that’s the appropriate role of the committee process in the House and Senate and I would expect it would stay that way.”
While Supercommittee members have not commented publicly, it has been widely reported in Washington that both the Democratic members and Republican members have submitted plans.
The Democratic proposal would reduce the deficit by $3 trillion over 10 years. This plan includes approximately $1.3 trillion in revenue and $1.7 trillion in spending cuts. The spending cuts reportedly include a $500 billion reduction in Medicaid. Republican members have publicly indicated opposition to the tax increases in that plan.
The Republican plan includes $2 trillion in spending reductions. Approximately $685 billion of this total is through healthcare savings. House Ways and Means ranking minority member Sander Levin (D-MI) indicated that supercommittee Democrats would not accept the Republican proposal.
Editor’s Note: The deadline for an agreement is rapidly approaching. While the bill must be published by November 23, 2011, it has to be scored by the Congressional Budget Office in order to be certain that it meets the $1.2 trillion target number. CBO Director Douglas Elmendorf stated that he would need two weeks to do the economic scoring of the bill. Therefore, his hope is that the Supercommittee bill will be available the first week of November.
Source: Children’s Home Society of Florida Foundation
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