Senate Finance Committee Working Groups Release Tax Reform Recommendations
Last week, the five U.S. Senate Finance Committee working groups released their long-awaited recommendations for federal tax reform. In all, while committee members argued the necessity of federal tax reform (noting it costs businesses alone $40 billion to comply with the federal tax code), the reports offered very few specifics about what lawmakers should include in a federal tax reform package and failed almost entirely to address the concerns of U.S. small businesses.
MSCI’s allies at the S-Corp Association have provided an excellent summary of the Business Tax Working Group’s report. The association notes that the working group’s recommendations focus on lowering the corporate tax rate instead of lowering all rates. Indeed, the S-Corp Association found “The term ‘corporate tax rate’ is mentioned more than a dozen times in the principles” while the “higher tax rates many pass through business pay are not mentioned at all.” While the working group’s report insists that corporate tax reform should not harm businesses that pay through the individual income tax rate system, as the S-Corp Association argues, “That’s a pretty low bar” and “simply not harming pass-through businesses should not be confused with actually improving the tax code to make those businesses more competitive.”
The business working group’s report also does not discuss the harmful effects of repealing the last-in, first-out (LIFO) accounting principle. There is only one mention of LIFO repeal in the report and that is to note that repeal would raise revenues by $79.1 billion. (The report calls LIFO repeal one of the “top” tax base broadeners – a qualification that MSCI believes makes it clear LIFO repeal is very much on the table for federal tax reformers.)
While many members of Congress have acknowledged the chances of getting federal tax reform passed before the 2016 election are slim, MSCI will continue to argue that, when Congress does take up the question of how to make our federal tax code fairer and less burdensome, it must address both sides of the system: corporate and individual. The Business Tax Reform Working Group said, “[W]hile it will entail many difficult decisions, the need for business tax reform only grows more urgent with each passing year. Recent history has demonstrated that every year that America waits to address reform will result in more business activity in those nations that have implemented more competitive tax systems, it will mean more and more U.S.-based companies acquired by their foreign-based competitors, and it will mean U.S. economic growth that continues to be hampered by our burdensome and antiquated tax system.” That statement is true, but American job creators cannot afford for federal lawmakers to get this policy wrong: we must continue to fight for comprehensive, not corporate-only, federal tax reform.
We must also continue to oppose LIFO repeal and MSCI is committed to putting its full force behind those efforts as part of the LIFO Coalition. For readers interested in the full reports, findings from all five committees can be found here.