Last week, the Republican Staff of the Senate Finance Committee released a report titled “Comprehensive Tax Reform for 2015 and Beyond,” a primer on where we have been, where we are going, and highlighting the pressure points in individual, corporate, and international tax reform.
It is a well-crafted, educational document. On the individual side, it explores things we often refuse to look at in this country, including tax bases other than income, such as consumption or wage bases. It even explains how the often politically unpopular value added tax (VAT) works, in plain English. The growth impacts of reform are also explored, which should be a key consideration in any tax reform proposal. It touches on things like the provisions relating to healthcare, children, retirement, and education.
On the business side, the report explores integration, providing both a solid historical background and substantive review of the issue. It touches on rates, tax expenditures, accounting issues, and pass-through entities – focusing there on the need for harmonization throughout the pass-through regime.
In the international realm, the report notes the rising importance of an international tax regime in our increasingly global economy. It discusses theories of international taxation and calls for a shift to a “territorial” system of taxation, a step desperately needed to bring our international tax regime in line with other developed countries and give American companies the chance to compete on a level playing field. It also touches on the complex issues of expense allocation, how to incentivize research and development, minimum taxes, treatment of foreign companies doing business in the United States, and even non-resident U.S. citizens (who are likely delighted to finally be acknowledged as part of this conversation!). The international section is peppered with both historical and other country examples that help explain complex international issues.
This report also is notable for what it does not include – something Martin Sullivan highlighted in his December 15th Forbes piece, where he noted that the report commits to no specific marginal individual or corporate tax rates, offers no specifics on how to limit popular deductions, offers no commentary on the specifics of outgoing House Ways & Means Chairman Dave Camp’s tax reform proposal, and likewise is silent on contentious issues like the appropriate baseline and the correct definition of revenue neutrality. Sullivan concludes that if presumptive Chairman Hatch is so serious about tax reform “should he not also go beyond publishing reports and principles and write a real bill?”
Well, of course. Surely Dr. Sullivan has held President Obama to such a standard, seeing as how the Obama Administration has yet to release even a report on comprehensive tax reform comparable to Senator Hatch’s, let alone a detailed proposal.
Wisely, Ranking Member Hatch is waiting until he is the actual, rather than the presumptive, Chairman of the Senate Finance Committee before he puts out a proposal. And wisely he is still hoping the President will engage seriously. As Chairman Camp learned with his proposal, one makes little progress in a one-sided conversation.
And maybe it’s important to appreciate this document for what it is – a policy discussion on issues we must consider in tax reform; a document that attempts to remove some of the politically charged rhetoric from the discussion. It’s not as if all those issues are not broached or acknowledged as important, it’s that this report in contrast to Sullivan’s remonstrance maintains a refreshing air of political neutrality that really seems to start a civilized conversation on tax reform as we enter the 114th Congress. This deserves applause, not reprimand.
Ironically, while Sullivan assails this report for its lack of specifics, just a few months ago, Jason Furman, the chairman of the Council of Economic Advisers, attacked Chairman Camp’s tax reform proposal for being too “specific.”
As the saying goes, “You can please some of the people all of the time, you can please all of the people some of the time, but you can’t please all of the people all of the time.” It’ll be interesting to see, going forward, if Chairman Hatch is ever able to please Dr. Sullivan. The betting is open.