Tax Hot Topics
The Republicans heading the tax committees in both the House and Senate indicated last week that they may be willing to meet President Obama halfway and move a business tax reform plan that would lower corporate rates but leave the rates for individuals and pass-throughs untouched.
Senate Finance Committee Chair Orrin Hatch, R-Utah, acknowledged that business-only reform “may be what we have to do,” while House Ways and Means Committee Chair Paul Ryan, R-Wis., said he’s open to “incremental progress” and willing to approach tax reform “in pieces.” Although both lawmakers had previously expressed guarded interest in Obama’s pitch for business-only reform, the new comments are the strongest indication yet that they are seriously considering reform that does not address individuals and pass-throughs.
Obama made clear early in the year that he had no interest in lowering individual rates and even proposed increasing rates on capital gains and dividends. He has pushed for “business reform” to lower only corporate rates, but this position put him at odds with Republicans who have demanded that tax reform include pass-through businesses. Obama’s position on individual rates seemed to preclude any real chance at reform this year.
Republican willingness to engage in corporate-focused reform should add momentum to the reform effort, yet the possibility of reform still seems fairly remote. It remains unclear how much common ground exists between the two parties. Hatch said he still wanted to ensure that “pass-through businesses that file individual income taxes reap benefits alongside any corporate income tax improvements like lower rates.”
Ryan also said he wanted to make sure pass-throughs got some relief on their “effective rates,” but said he would not support a direct reduction in pass-through rates outside of an individual rate cut. The idea is that incremental tax reform should not make comprehensive reform more difficult. Ryan is optimistic that working on corporate reform now could make it easier in 2017 to complete reform by reducing individual rates. Both Hatch and Ryan have said that tax reform must make real progress by early summer to have a chance at implementation.
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