The two tax-writing chairmen on Capitol Hill are looking to the business community for help on one of the knottiest issues on tax reform — dealing with companies that pay the Treasury through the individual system.
Senate Finance Chairman Orrin Hatch (R-Utah) and House Ways and Means Chairman Paul Ryan (R-Wis.) want input on how tax reform can help those businesses — known as pass-throughs — even if it doesn’t reduce the top individual rate, which currently hovers near 40 percent.
{mosads}President Obama has made it clear that they won’t back any plan that reduces that top individual rate, which Democrats finally got raised in early 2013 after years of fighting. The White House and other Democrats have said they’re interested in overhauling the tax code for businesses.
“We are looking for ideas on how to reduce the effective tax rate without reducing the statutory tax rates in a manner that will make small businesses more competitive and better able to invest, grow, hire, and increase wages for their employees,” Hatch and Ryan wrote to members of the Coalition for Fair Effective Tax Rates on Monday.
In their letter, Hatch and Ryan acknowledged that tax reform that lowers the top individual rate would have to wait until at least 2017, when the White House has a new occupant. But they also insisted that they were willing to work with Obama on getting “a first phase of tax reform focused in part on business income” completed, and then doubling back for individuals.
“While the reality is that the statutory tax rates for pass-through businesses will have to wait until the next president, there are reforms we can enact now that will lower the effective tax rate on pass-through businesses,” Hatch and Ryan wrote to the business group.
Both Hatch and Ryan had previously suggested that they’re willing to work with the White House on an overhaul of the tax code that drops the top corporate rate from 35 percent while still falling short of being comprehensive. But lawmakers in both parties have questioned that approach, making the case that it will be difficult to reach two tax reform deals in quick succession.
Congress and the White House will also have to hurry if there’s to be any tax reform agreement before Obama leaves office.
With the 2016 presidential campaign already heating up, Ryan and others have said that Washington will have to have made significant tax reform progress by this summer for tax reform to have a chance before 2017. In their Monday letter, Hatch and Ryan asked for businesses to weigh in by the end of May.
Small business advocates like the National Federation of Independent Business have openly worried for years that tax reform would roll back tax incentives that pass-throughs use without lowering their tax rates. NFIB, the Retail Industry Leaders Association and the National Association of Wholesaler-Distributors are among the roughly 70 national groups in the effective tax rate coalition.
Still, figuring out how to deal with pass-through businesses might be one of the more difficult question for tax writers, but it’s also far from the only one. Democrats and Republicans, for instance, still have to bridge gaps over whether tax reform should raise new revenue for the Treasury and offshore corporate income.