CohnReznick Capitol Connection: Does Economic Patriotism Create Tax Reform?
July 23, 2014
Every once in a while (or every 10 years on a full moon), something spurs Congress into action. As many of you know, this spring Ways and Means Chairman David Camp produced a Tax Reform “Discussion Draft” which proposed lowering the corporate rate from 35% to 25%. After a series of stops and starts, including a change in the Senate Finance Committee Chairmanship, Mr. Camp issued his draft to a mostly silent audience. The silence was not a deafening one, as several recent events have manufactured a renewed call for tax reform.
You can call it a reversal of order, or simply a change of address, but the term “inversions”— specifically the act of U.S. corporations moving their domiciled address overseas to reduce their corporate tax rate — has Congress and the Administration alarmed. Inversion transactions recently proposed by two large pharmaceutical drug makers, AbbVie and Mylan, have spurred renewed talks about tax reform, and the fact that the 35% U.S. corporate tax rate is among the highest in the world. The inversion process allows companies to relocate overseas by acquiring a foreign rival, and in the past 10 years twice as many companies have reincorporated abroad than in the 10 years prior to that. Can action on tax reform be forthcoming at a time when we move into the open season of Congress, something called the mid-term elections?
According to Treasury Secretary Jack Lew, comprehensive reform of the U.S. corporate tax system, including a lowered rate, is the solution. So now, it appears, the Administration reacts to the need for reform. I can imagine Chairman Camp scratching his head. Last week Secretary Lew wrote to Senate Finance Chairman Ron Wyden calling for immediate and punitive action to “shut down this abuse” of our tax system. And now, the top Republican on Senate Finance, Sen. Orrin Hatch, who does not support the anti-inversion legislation he has seen to date, is calling for a long-term solution through revamping the tax code.
In 1986, Tax Reform was spurred into action by the taxpayers' disdain for high individual rates. Whether inversions are the catalyst for corporate tax reform is yet to be seen, but certainly Secretary Lew, who calls out for “economic patriotism,” certainly believes so. While many believe tax reform will heat up again after 2016, I would not bet against the potential tax writing committee roster coming up with something sooner than that. Tax reform will not happen without support from the White House, and Senator Hatch, Senator Wyden, and Rep. Ryan suddenly have that support. For Dave Camp, had only the full moon come sooner, like a lunar inversion...
Bob Moss is a CohnReznick Principal and National Director of Governmental Affairs. Bob leads the Firm’s federal and state government relations efforts, particularly in the area of affordable housing. He can be reached at firstname.lastname@example.org or 617-648-1406. For more legislative insight from Bob, visit our Capitol Connection webpage.
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