Tax reform percolates in Washington as the new Congress and the White House continue discussions over the scope and reach of tax legislation this year. Administration officials, lawmakers and Congressional staffers have signaled that off-the-record discussions have dealt with some hefty tax reform proposals but, so far, have released few details of these discussions. At the same time, Senate tax writers have opened up the tax reform process to public input.

Tax reform discussions

The White House and the GOP-controlled Congress have laid out broad tax reform proposals in recent weeks. As in past years, President Obama has proposed to link corporate tax reform with individual tax reform. In exchange for a lower corporate tax rate, the President is asking business taxpayers to give up some unspecified tax breaks. The President’s individual tax reform proposals do not focus on the tax rates but on some specific tax incentives, particularly the earned income credit, the child and dependent care credit, and the American Opportunity Tax Credit.

In their fiscal year (FY) 2016 budget proposals, Republicans in Congress have also called for corporate tax reform. Many lawmakers, from both parties, favor lowering the corporate tax rate to the neighborhood of 25 percent. Disagreements arise over how to pay for any reduction. Congressional Republicans have also proposed repealing the alternative minimum tax (AMT) and making permanent the research tax credit. Unlike past years, the GOP did not set forth detailed tax reform proposals in its FY budget, which some Capitol Hill observers believe indicates that lawmakers are open to compromise.

Both sides stress that there is common ground, especially in their desire to reduce the corporate tax rate. Some GOP lawmakers have signaled a willingness to eliminate some, as of yet unspecified, business tax preferences to achieve a lower corporate tax rate.

Public input

The Senate Finance Committee is engaged in a detailed study of tax reform. Members of the committee are meeting in working groups to review individual, business, international and other tax reform proposals. The working groups are expected to unveil their findings before summer. In the meantime, the committee has invited taxpayers to share their tax reform proposals with lawmakers. Taxpayers can email the committee with recommendations:

• Individual Income Tax – Individual@finance.senate.gov
• Business Income Tax – Business@finance.senate.gov
• Savings & Investment – Savings@finance.senate.gov
• International Tax – International@finance.senate.gov
• Community Development & Infrastructure – CommunityDevelopment@finance.senate.gov

“By opening up our bipartisan working groups to public input, we hope to gain a greater understanding of how tax policy affects individuals, businesses, and civic groups across our nation,” the leaders of the committee, Sen. Orrin Hatch, R-Utah, and Sen. Ron Wyden, D-Ore., said. “In doing so, we will also equip our working groups with valuable input, and we hope these suggestions will help guide the groups through the arduous task of putting forth substantive ideas to reform the tax code in each of their areas,” the lawmakers said.

Other proposals

Some lawmakers have introduced proposals for tax reform. In March, Sen. Marco Rubio, R-Fla., and Sen. Mike Lee, R-Utah, unveiled a blueprint for tax reform. The Rubio-Lee plan would consolidate the current individual tax rates into two: a 15 percent bracket and a 35 percent bracket. The lawmakers also proposed to allow many of the popular tax extenders to permanently expire. The Rubio-Lee plan would also “re-tool” the EIC and repeal the federal estate tax.

The House Ways and Means Committee in March approved several stand-alone tax bills, sending the bills to the full House for its consideration. The bills include language allowing the right to an administrative appeal after an organization is denied tax-exempt status by the IRS, a revamp of the process for determining status as a Code Sec. 501(c)(4) organization, and a taxpayer bill of rights.

If you have any questions about the tax reform proposals or tax legislation, please contact our office.