Silence is golden for backers of tax plan

For the small-business lobby, the idea of revamping America’s international tax structure isn’t even worth a comment yet.

But make no mistake: That’s a victory for House Ways and Means Committee Chairman Paul Ryan (R-Wis.), Sen. Charles Schumer (D-N.Y.) and those who want to chase an international deal that would help fund a long-term highway bill. 

{mosads}Ryan has hinted that it would be difficult to rebuild the tax code over the opposition of groups such as the National Federation of Independent Business (NFIB), which stridently criticized bipartisan talks about business tax reform this year, saying they were favoring corporate America over Main Street. 

Other Republicans have been even more open about how hard it would be to cross powerful advocates that are generally top GOP supporters. The NFIB was the lead challenger in the 2012 Supreme Court decision that upheld ObamaCare, and the group has historically backed Republicans on taxes, regulations and a host of other issues.

“This does sort of set aside any concerns that we aren’t going to do business tax reform for all sizes of business,” said Rep. Kevin Brady (Texas), a senior Republican on the Ways and Means panel who called the NFIB a “very important” voice to the GOP. 

“They know that we’re not going to leave any businesses, wherever they are structured, behind in tax reform,” Brady added.

Small-business advocates had a pretty simple reason for opposing the broader efforts on business tax reform this year: It is an area, like trade, where lawmakers saw an opportunity for bipartisan cooperation. 

President Obama, Ryan and other important players in both parties agree that the top corporate rate, currently 35 percent, needs to be slashed. But the White House and congressional Democrats have no interest in reducing the top rates for individuals, which they fought to raise not even three years ago. 

Because many small businesses pay taxes through the individual system, their advocates say that a tax deal that merely cuts the corporate rate would give corporations an unfair advantage. Businesses that pay as individuals already face a top rate of almost 40 percent.

A tax reform coalition that includes the NFIB and other small-business advocates chided Ryan and Senate Finance Committee Chairman Orrin Hatch (R-Utah) in April for being willing to work with Obama on a plan that “is contrary to the aim of true tax reform.”

The Obama administration had floated giving small businesses more robust tax incentives instead of a rate cut. 

The Coalition for Fair Effective Tax Rates said it believed it had “clearly and consistently communicated” its opposition to that approach, and that “effective tax rate parity” between corporations and small businesses “defines true tax reform in our view.”

But legislation that rewrote international rules for U.S. multinational companies would in effect be so slimmed down — it wouldn’t touch either corporate or individual rates — that it might not raise objections from the small-business community. 

The NFIB and other advocates generally have decided not to comment publicly on the framework of an international deal that Schumer and Sen. Rob Portman (R-Ohio) released last week.

“I suppose the smaller the better,” Portman said Wednesday about the chances for a deal this year, while also making the case that broader tax reform needs to happen.

Ryan admitted to reporters last week that creating more of a disparity between the corporate and the individual rates was a big obstacle for more comprehensive tax reform, which he says will now have to wait at least until Obama is out of office.

Modernizing international rules, Ryan added, is “good policy no matter what the tax rate is.”

“We think a lower tax rate’s also good tax policy, and that’s what we hope to achieve in broader comprehensive tax reform which will have to come at a later date,” Ryan said.

The House voted Wednesday to extend highway funding, which expires on July 31, until the middle of December. 

Ryan has said that he wants to use the time bought by the five-month extension to work on a plan that would tax corporate profits currently stashed abroad for highway projects while also shielding future offshore earnings from U.S. taxation and giving companies a lower tax rate on income stemming from intellectual property.

But besides Portman, Senate Republicans have shown little interest in that plan and are working on a longer deal, wanting instead to fund highway projects at least through the 2016 elections.

Plus, lawmakers will face a host of knotty questions if they do try to flesh out what is currently a bipartisan framework, including how much to tax the current offshore profits, what intellectual property to allow in an “innovation box” and what sort of limits to put on gaming offshore taxes.

Tax lobbyists say there’s no doubt that the disputes among the business community will increase if and when Ryan, Schumer and the others release more details about an international plan. 

For instance, corporations without many international operations could see a deal as giving too many advantages to multinational companies, lobbyists said this week.

Small-business advocates might also express concern if provisions such as an innovation box become so costly that they make it harder for tax writers to lower rates in the future, K Street observers added.

A spokesman for the NFIB said the organization reserved the right to weigh in later on an international deal, should those details emerge.

But Rep. Dave Reichert (R-Wash.), another senior Ways and Means member, made it clear that small-business groups were “fine with us moving ahead” on a smaller international deal.

“The key here is that we are looking at what we can actually accomplish before the end of the year,” he said.