May 22, 2017

U.S. House Ways And Means Committee Begins Tax Debate

The U.S. House Committee on Ways and Means held a hearing on federal tax reform last week—its first foray into the issue for the 115th Congress. The hearing explored how federal tax reform could benefit the U.S. economy. Lawmakers also discussed issues ranging from the benefits of immediate expensing to the tax treatment of pass-through entities and the international competitiveness of the current tax code. 

Ways and Means Chairman Kevin Brady (R-TX) was unequivocal in his support for lower tax rates. Rep. Brady said the current code is “one of the most costly, unfair, and uncompetitive tax systems in the world,” driving jobs abroad and making it more difficult to invest and create jobs here at home. 

As MSCI’s partners at the S-Corp Association noted, Zach Mottl, the chief alignment officer for Atlas Tool Works, a multi-generation family business located outside of Chicago, made the case for a comprehensive reform bill that reduces tax rates for both corporations and pass-through entities. Mottl explained that “oftentimes, tax issues affect manufacturers of different sizes in different ways, usually smaller manufacturers … are the only companies paying a higher tax rate because we do not have the staff or the resources to develop a comprehensive global tax avoidance plan like our larger peers …” Rep. Vern Buchanan (R-FL) echoed Mottl’s comments. He noted, “When you look at corporate rates at 35 percent they're not competitive, but for pass-throughs it's as high as 44 percent.” 

MSCI, a member of the Coalition for Fair Effective Tax Rates (CFETR), supports rate cuts for both corporations and pass-through entities. CFETR issued a press release after the House Ways and Means hearing. The statement said, “Large disparities exist between the amount of taxes paid by various industries regardless of how the companies are organized. Successful reform should be measured by lawmakers’ ability to create a more level playing field for businesses of all sizes across all industry sectors based on effective tax rates.” 

Click here to read more about MSCI’s efforts to pass comprehensive tax reform. 

The U.S. Senate Finance Committee will hold a hearing on federal tax reform next week. There is general agreement among the House and Senate and within both parties that the U.S. corporate tax rate is too high. In an interview last week, however, Sen. Elizabeth Warren (D-MA), who is not a member of the Finance Committee, but is on the Senate Banking Committee, indicated that she believes the federal corporate tax rate might be too low. Sen. Warren said, “The way I see it, taxes and the whole debate around taxes is ultimately going to be about who pays a fair share to keep this government running and that’s the question we need to look at on the corporate side and on the individual side.” 

Additionally, in a Banking Committee hearing last week, Sen. Warren questioned U.S. Treasury Secretary Steve Mnuchin about tax reform. Sen. Warren asked about President Donald Trump’s tax plan, which includes a 15 percent top rate for pass-through entities. Sen. Warren said she is worried that setting the pass-through rate so low would result in fraud. Secretary Mnuchin answered that executive branch would “put procedures in place … to prevent people who should be paying higher taxes from using pass-throughs to arbitrage the system.” The secretary will discuss tax reform again at next week’s Senate Finance Committee hearing.