House Ways and Means Hearing on Income Tax Reform Proposals
House Ways and Means Committee
“Income Tax Reform Proposals”
Wednesday, April 13, 2016
Key Topics & Takeaways
- Deadline Risks: Rep. James Renacci (R-Ohio) displayed a concern with Goodlatte’s H.R. 27 as it sets a termination date and “forces” Congress to act, and worries taxpayers will not have some level of certainty and predictability of a new tax system. Goodlatte stated that the deadline is designed to move tax reform to the “front burner” of Congress. He believes there is a bipartisan sentiment of reforming the current tax code, and therefore the deadline will provide momentum for Congress.
- Corporate Burden: Renacci asked if corporations ultimately pass the burden of corporate tax to their customers. Barthold replied that the Joint Committee on Taxation’s (JCT) analysis illustrates business tax affecting both the owners of the capital investment and the laborers, and that conversely in the long term, it affects labor because capital investment is diminished.
- Base Erosion: Rep. George Holding (R-NC) questioned how the increase in base erosion impacts tax reform proposals and whether the JCT takes this increase into account when scoring a comprehensive package. Barthold asserted that the JCT does take into account what is occurring with base erosions and consults with colleagues at the Congressional Budget Office. He added that the primary base erosion aspect of H.R. 1 is related to establishing a new category of foreign base company intangible income.
Witnesses
- Rep. Bob Goodlatte (R-Va.)
- Rep. Roger Williams (R-Texas)
- Thomas Barthold, Chief of Staff, Joint Committee on Taxation
Opening Statements
In his opening statement, Chairman Charles Boustany (R-La.) announced that the hearing would concentrate on tax reform proposals within the context of an income tax system, and mentioned last month’s hearing focused on moving the income-based tax system to a cash-flow or consumption based system. Boustany described the current tax system as “complex, unfair and outdated,” and that “ultimately, the Ways and Means Committee must weave the most pro-growth concepts and ideas into a bold plan that fundamentally and comprehensively reforms our tax system.”
Ranking Member Richard Neal (D-Mass.), in his opening statement, stated that he does not believe “we are any closer to fixing our broken and inefficient tax code,” and urged a reform that promotes job growth, lifts wages for all workers, and grows the middle class. Neal argued that the “Panama Papers” have highlighted the urgent need to “crack down on those who engage in exotic tax schemes nationally and internationally and avoid paying their fair share.” He concluded “if the recent wave of inversions were not enough to spur this committee to action, perhaps the Panama Papers will.”
Panel 1 Testimony
Rep. Bob Goodlatte (R-Va.)
In his testimony, Rep. Bob Goodlatte (R-Va.) discussed his bill, H.R. 27, the Tax Code Termination Act, explaining that the Tax Code Termination Act simply puts a date on the expiration of our current tax code and enables Congress to establish a new tax system before that expiration. He described the bill being as “simple as it sounds.” Goodlatte clarified his legislation is made of three components: 1) it sets December 31, 2019 as the expiration date for our current tax code, with exceptions for self-employment taxes, federal insurance contribution taxes, and railroad retirement; 2) it outlines a simple framework for a new tax system that applies a low rate to all Americans, provides tax relief for working Americans, protects the rights of taxpayers, reduces collection abuses, promotes economic growth and job creation; and 3) it declares that a new tax system should be approved by July 4, 2019 and requires a two-thirds majority for a change in dates. He also acknowledged the bill’s passage history in the 105th and 106th Congress.
Rep. Roger Williams (R-Texas)
In his testimony, Rep. Roger Williams (R-Texas) touted his proposal, the Jumpstart America Act, which includes six pieces of legislation. Williams explained that his proposal lays out a comprehensive income tax reform plan that taxes individuals under a two-bracket system, repeals the estate tax, and restructures the corporate income tax, including a significant reduction in the rate. Williams continued that the legislative package includes lowering the corporate rate to 20 percent, making 100 percent bonus depreciation permanent, keeping last-in first-out (LIFO) accounting and allowing a permanent 5 percent tax rate on the repatriation of foreign earnings.
Questions and Answers
Rep. James Renacci (R-Ohio) displayed a concern with Goodlatte’s H.R. 27, as it sets a termination date and “forces” Congress to act, but noted that he worries taxpayers will not have some level of certainty and predictability of a new tax system. He further stated that Congress will have a deadline with the possibility of not having a solution, using the most recent reference of Extenders and the Protecting Americans from Tax Hikes (PATH) Act, and asked Goodlatte about the downside of implementing a deadline. Goodlatte stated that the deadline is designed to move tax reform to the “front burner” of Congress, and explained there is a bipartisan sentiment of reforming the current tax code system; therefore the deadline will provide momentum for Congress.
Rep. George Holding (R-NC) asked about concerns regarding abuses of collection fees and how the Committee should “shake the tax code” to adequately protect citizens. Williams stated that Congress maintains active oversight over the Internal Revenue Service (IRS), and that the public’s trust in the tax system is of paramount importance.
Panel 2 Testimony
Thomas Barthold, Chief of Staff, Joint Committee on Taxation
In his testimony, Thomas Barthold focused on broad-based income tax reform, and used former Chairman Dave Camp’s (R-Mich.) H.R. 1 as a “good example of broad-based income tax reform” because it serves as a reminder to the Members of Congress of four major questions to consider and analyze with any tax reform proposal: 1) Does the tax system or reform promote economic efficiency? 2) Does it promote growth? 3) Is the system fair? and 4) Is the tax system administrable? He then noted that in “crafting any tax reform proposal there are trade-offs,” because often a proposal that promotes efficiency might not be “as fair as we [would] like.” Barthold continued that Camp sought for his proposal to be revenue neutral, maintain a distribution of tax burden, and to not have a shift in business taxes. He advised members that proposals should lower tax rates, while broadening the tax base can help strengthen labor force participation, promote investment, and increase economic growth.
Questions and Answers
Simplifying the Tax Code
Boustany asked how the JCT measures simplification of a tax proposal. Barthold responded that one way is requiring the IRS to estimate the amount of time and effort it takes to complete certain forms and another area in which the JCT tries to assess the area of simplification is from the IRS Reform and Restructuring Act.
Focus Areas
Boustany asked what areas of the IRS code Members of Congress should focus on reforming. Barthold stressed the possibilities and trade-offs H.R. 1 demonstrates, and referenced base broadening in the corporate goal of H.R. 1 was to reduce tax rates, but that “the trade-off made in H.R. 1 was slowing the cost recovery, but reducing the rate as they work in opposite directions.”
Renacci asked if corporations ultimately pass on the burden of corporate tax to their customers. Barthold explained that “it is a longstanding economic dogma that individuals bare taxes.” He then added that in the JCT’s analysis illustrates business tax affecting both the owners of the capital investment and the laborers, and that conversely in the long term; it affects labor because capital investment is diminished.
Renacci asked if lowering the corporate tax rate could be one way to have pro-growth out of corporations. Barthold affirmed that lowering tax rates always increases the return of investment, and therefore more investment and growth should be seen.
Base Erosion
Rep. George Holding (R-NC) questioned how the increase in base erosion impacts tax reform proposals and whether the JCT takes this increase into account when scoring a comprehensive package. Barthold asserted that the JCT does take into account what is occurring with base erosions and consults with colleagues at the Congressional Budget Office. He added that the primary base erosion aspect of H.R. 1 is related to establishing a new category of foreign base company intangible income, and provided the example of intangible investment property transferred aboard to lower income tax jurisdiction.
For more information on this hearing, please click here.
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House Ways and Means Committee
“Income Tax Reform Proposals”
Wednesday, April 13, 2016
Key Topics & Takeaways
- Deadline Risks: Rep. James Renacci (R-Ohio) displayed a concern with Goodlatte’s H.R. 27 as it sets a termination date and “forces” Congress to act, and worries taxpayers will not have some level of certainty and predictability of a new tax system. Goodlatte stated that the deadline is designed to move tax reform to the “front burner” of Congress. He believes there is a bipartisan sentiment of reforming the current tax code, and therefore the deadline will provide momentum for Congress.
- Corporate Burden: Renacci asked if corporations ultimately pass the burden of corporate tax to their customers. Barthold replied that the Joint Committee on Taxation’s (JCT) analysis illustrates business tax affecting both the owners of the capital investment and the laborers, and that conversely in the long term, it affects labor because capital investment is diminished.
- Base Erosion: Rep. George Holding (R-NC) questioned how the increase in base erosion impacts tax reform proposals and whether the JCT takes this increase into account when scoring a comprehensive package. Barthold asserted that the JCT does take into account what is occurring with base erosions and consults with colleagues at the Congressional Budget Office. He added that the primary base erosion aspect of H.R. 1 is related to establishing a new category of foreign base company intangible income.
Witnesses
- Rep. Bob Goodlatte (R-Va.)
- Rep. Roger Williams (R-Texas)
- Thomas Barthold, Chief of Staff, Joint Committee on Taxation
Opening Statements
In his opening statement, Chairman Charles Boustany (R-La.) announced that the hearing would concentrate on tax reform proposals within the context of an income tax system, and mentioned last month’s hearing focused on moving the income-based tax system to a cash-flow or consumption based system. Boustany described the current tax system as “complex, unfair and outdated,” and that “ultimately, the Ways and Means Committee must weave the most pro-growth concepts and ideas into a bold plan that fundamentally and comprehensively reforms our tax system.”
Ranking Member Richard Neal (D-Mass.), in his opening statement, stated that he does not believe “we are any closer to fixing our broken and inefficient tax code,” and urged a reform that promotes job growth, lifts wages for all workers, and grows the middle class. Neal argued that the “Panama Papers” have highlighted the urgent need to “crack down on those who engage in exotic tax schemes nationally and internationally and avoid paying their fair share.” He concluded “if the recent wave of inversions were not enough to spur this committee to action, perhaps the Panama Papers will.”
Panel 1 Testimony
Rep. Bob Goodlatte (R-Va.)
In his testimony, Rep. Bob Goodlatte (R-Va.) discussed his bill, H.R. 27, the Tax Code Termination Act, explaining that the Tax Code Termination Act simply puts a date on the expiration of our current tax code and enables Congress to establish a new tax system before that expiration. He described the bill being as “simple as it sounds.” Goodlatte clarified his legislation is made of three components: 1) it sets December 31, 2019 as the expiration date for our current tax code, with exceptions for self-employment taxes, federal insurance contribution taxes, and railroad retirement; 2) it outlines a simple framework for a new tax system that applies a low rate to all Americans, provides tax relief for working Americans, protects the rights of taxpayers, reduces collection abuses, promotes economic growth and job creation; and 3) it declares that a new tax system should be approved by July 4, 2019 and requires a two-thirds majority for a change in dates. He also acknowledged the bill’s passage history in the 105th and 106th Congress.
Rep. Roger Williams (R-Texas)
In his testimony, Rep. Roger Williams (R-Texas) touted his proposal, the Jumpstart America Act, which includes six pieces of legislation. Williams explained that his proposal lays out a comprehensive income tax reform plan that taxes individuals under a two-bracket system, repeals the estate tax, and restructures the corporate income tax, including a significant reduction in the rate. Williams continued that the legislative package includes lowering the corporate rate to 20 percent, making 100 percent bonus depreciation permanent, keeping last-in first-out (LIFO) accounting and allowing a permanent 5 percent tax rate on the repatriation of foreign earnings.
Questions and Answers
Rep. James Renacci (R-Ohio) displayed a concern with Goodlatte’s H.R. 27, as it sets a termination date and “forces” Congress to act, but noted that he worries taxpayers will not have some level of certainty and predictability of a new tax system. He further stated that Congress will have a deadline with the possibility of not having a solution, using the most recent reference of Extenders and the Protecting Americans from Tax Hikes (PATH) Act, and asked Goodlatte about the downside of implementing a deadline. Goodlatte stated that the deadline is designed to move tax reform to the “front burner” of Congress, and explained there is a bipartisan sentiment of reforming the current tax code system; therefore the deadline will provide momentum for Congress.
Rep. George Holding (R-NC) asked about concerns regarding abuses of collection fees and how the Committee should “shake the tax code” to adequately protect citizens. Williams stated that Congress maintains active oversight over the Internal Revenue Service (IRS), and that the public’s trust in the tax system is of paramount importance.
Panel 2 Testimony
Thomas Barthold, Chief of Staff, Joint Committee on Taxation
In his testimony, Thomas Barthold focused on broad-based income tax reform, and used former Chairman Dave Camp’s (R-Mich.) H.R. 1 as a “good example of broad-based income tax reform” because it serves as a reminder to the Members of Congress of four major questions to consider and analyze with any tax reform proposal: 1) Does the tax system or reform promote economic efficiency? 2) Does it promote growth? 3) Is the system fair? and 4) Is the tax system administrable? He then noted that in “crafting any tax reform proposal there are trade-offs,” because often a proposal that promotes efficiency might not be “as fair as we [would] like.” Barthold continued that Camp sought for his proposal to be revenue neutral, maintain a distribution of tax burden, and to not have a shift in business taxes. He advised members that proposals should lower tax rates, while broadening the tax base can help strengthen labor force participation, promote investment, and increase economic growth.
Questions and Answers
Simplifying the Tax Code
Boustany asked how the JCT measures simplification of a tax proposal. Barthold responded that one way is requiring the IRS to estimate the amount of time and effort it takes to complete certain forms and another area in which the JCT tries to assess the area of simplification is from the IRS Reform and Restructuring Act.
Focus Areas
Boustany asked what areas of the IRS code Members of Congress should focus on reforming. Barthold stressed the possibilities and trade-offs H.R. 1 demonstrates, and referenced base broadening in the corporate goal of H.R. 1 was to reduce tax rates, but that “the trade-off made in H.R. 1 was slowing the cost recovery, but reducing the rate as they work in opposite directions.”
Renacci asked if corporations ultimately pass on the burden of corporate tax to their customers. Barthold explained that “it is a longstanding economic dogma that individuals bare taxes.” He then added that in the JCT’s analysis illustrates business tax affecting both the owners of the capital investment and the laborers, and that conversely in the long term; it affects labor because capital investment is diminished.
Renacci asked if lowering the corporate tax rate could be one way to have pro-growth out of corporations. Barthold affirmed that lowering tax rates always increases the return of investment, and therefore more investment and growth should be seen.
Base Erosion
Rep. George Holding (R-NC) questioned how the increase in base erosion impacts tax reform proposals and whether the JCT takes this increase into account when scoring a comprehensive package. Barthold asserted that the JCT does take into account what is occurring with base erosions and consults with colleagues at the Congressional Budget Office. He added that the primary base erosion aspect of H.R. 1 is related to establishing a new category of foreign base company intangible income, and provided the example of intangible investment property transferred aboard to lower income tax jurisdiction.
For more information on this hearing, please click here.