The Senate Finance Committee released reports from the committee’s five bipartisan tax working groups:
- Business Income Tax (135 pages)
- Individual Income Tax (48 pages)
- International Tax (82 pages)
- Savings and Investment (18 pages)
- Community Development & Infrastructure (39 pages)
The reports offer policy options and recommendations for the Committee to consider as part of comprehensive tax reform.
On January 15, 2015, to coincide with the kickoff of a series of tax reform hearings, the Finance Committee Chairman and Ranking Member announced the formation of bipartisan tax reform working groups.
In March, after five tax reform hearings, the Committee announced it would ask stakeholders and the public to submit ideas to the bipartisan working groups. The Committee released those submissions on April 29, 2015.
- Press Release, Portman Unveils Bipartisan Principles for International Tax Reform: New System Would Eliminate the Lock-out Effect, Establish ‘Patent Box’ to Protect U.S. Innovation and Jobs, Preserve the U.S. Tax Base & More
- Senate Finance Committee International Tax Reform Working Group, Bipartisan Framework for International Tax Reform (2 pages)
- The Hill
- New York Times
- Wall Street Journal
- Washington Post
Business tax reform. The business report began by outlining guiding principles that the group thought should drive reform:
- Create an internationally competitive and modern business tax code that encourages job creation and economic growth, including by lowering business tax rates.
- Address structural biases (by, among other things, lessening the role that the tax system plays in choice of business entity) and promote investment.
- Promote American innovation.
- Remove complexity, encourage certainty and improve the taxpayer experience.
Among the proposals examined in the report included those to:
- Tax business income only onc
- Treat business income more uniformly;
- Remove disincentives to save and invest;
- Move the U.S. tax system towards a consumption-oriented base;
- Permanently extend and strengthen the research credit;
- Introduce a patent or innovation box regime;
- Promote American energy independence;
- Remove complexity by, among other things, rationalizing filing deadlines and mandating e-filing of certain forms;
- Overhaul the expensing and depreciation regimes;
- Limit the use of the cash method of accounting; and
- Limit the deduction for W-2 wages;
Individual income tax reform. The individual income tax reform report was generally divided into three subjects: tax incentives for charitable giving; tax incentives for higher education; and tax administration and simplification proposals. Specific proposals examined included those to:
- Permanently extend the provision allowing tax-free qualified charitable distributions from IRAs and potentially modify it by, for instance, expanding the types of eligible donees or removing the annual dollar limitation;
- Permanently extend the enhanced deduction for qualified conservation contributions;
- Repeal the Lifetime Learning credit and modify and make permanent the American Opportunity Tax Credit (AOTC);
- Combine the AOTC, Hope, and Lifetime Learning credits, and the tuition deduction, into one credit for all post-secondary education;
- Simplify the tax treatment of Pell grants;
- Combat identity theft by, among other things, extending IRS’s authority to use a truncated social security number on Form W-2 and adding civil penalties to the Code to be imposed in tax identity theft cases;
- Accelerate the due date for filing income tax returns of partnerships such that it precedes the due dates of their individual and corporate investors; and
- Accelerate the filing date for most information returns.
The individual report also noted that, while pass-through entities are implicated in individual tax reform, the group was unable to “thoroughly and comprehensively examine” pass-through entity issues.
International tax reform. The international report described what it views as two major reasons for action: the prevalence of corporate inversions, and the Organization for Economic Development’s (OECD’s) Base Erosion and Profiting Shifting (BEPS) project. The report essentially likened the BEPS project to a timer—that changes will be happening, and that if “policymakers fail to implement new rules in a timely fashion to combat overseas action, BEPS-related and unilateral actions around the globe will undoubtedly result in far more taxes paid into foreign coffers by U.S. multinational companies, with a corresponding revenue and job loss here.”
After providing an overview of current law, the report examined a number of prior international reform efforts, including:
- Establishing a 95% dividend received deduction;
- Adding a new category of subpart F income for “foreign base company intangible income”;
- Limiting or denying the deduction for interest expense of U.S. shareholders which are members of worldwide affiliated groups with excess domestic indebtedness;
- Imposing a 19% minimum tax on foreign income;
- Imposing a 14% one-time tax on previously untaxed foreign income;
- Ending the “lock-out effect” (i.e., the incentive for U.S. multinational companies to keep foreign earnings overseas);
- Adopting a patent box regime;
- Adopting a territorial-type international tax system; and
- Reforming parts of the Foreign Investment in Real Property Tax Act (FIRPTA).
Savings and investment. The savings and investment working group began its report by setting out three key goals for policymakers to pursue: (1) increasing access to tax deferred retirement savings, (2) increasing participation and levels of savings, and (3) discouraging leakage (the use of retirement funds for purposes other than retirement income) while promoting lifetime income.
To this end, the group examined the following proposals, among others:
- Allowing employers to join open multiple employer plans (MEPs);
- Offering enhanced start-up credits for small employers that elect to offer retirement plans;
- Allowing part-time workers to enroll in plans;
- Expanding the saver’s credit; and
- Allowing a percentage of otherwise taxable lifetime annuity payments received by an individual from an IRA or any type of defined contribution plan to be excluded from gross income.
Community development and infrastructure. The community development and infrastructure working group’s report was broken into two main parts: one describing options that could provide a funding alternative for the Highway Trust Fund, and the other providing an overview of present law on infrastructure financing, tribal issues, community development tax incentives, and energy.
After describing the woeful state of the Highway Trust Fund, the group provided an “interim option” that would not necessarily be a permanent solution, but could address immediate and critical needs: a one-time transition tax on all previously untaxed foreign earnings and profits, or “deemed repatriation.” As a long-term option, the group provided an overview of a “vehicle miles travelled tax,” or a VMT, under which users are taxed based on the number of miles travelled.