Daily Tax Update - June 2, 2011: Ways & Means Hearing on How Business Tax Reform Can Encourage Job Creation

THE DAILY TAX UPDATE WILL BE PUBLISHED ON A PERIODIC BASIS UNTIL THE SENATE RETURNS FROM ITS MEMORIAL DAY RECESS ON JUNE 6TH 

WAYS AND MEANS HEARING ON HOW BUSINESS TAX REFORM CAN ENCOURAGE JOB CREATION: Today’s House Ways and Means Committee heard testimony from several private sector witnesses on "major business and corporate tax issues and how changes to those aspects of the tax code, as part of comprehensive tax reform, can promote job creation and economic growth." The testimony and questions and answers portion of the hearing focused on the impact of corporate taxes on business decisions, the corporate tax rate, what tax expenditures companies might be willing to give up for a lower rate, and the extent to which corporate tax reform without individual tax reform could harm small businesses.

The witness were:

Ashby T. Corum, Partner, KPMG LLP, Detroit, MI.

Walter J. Galvin, Vice Chairman of the Board, Emerson Electric Co., St. Louis, MO.

Judy L. Brown, Executive Vice President & Chief Financial Officer, Perrigo Company, Allegan, MI.

James H. Zrust, Vice President, Tax, The Boeing Company, Chicago, IL

James Misplon, Vice President, Tax, Sears Holdings Management Corp., Hoffman Estates, IL. (testifying on behalf of the National Retail Federation)

Mark Stutman, National Managing Partner of Tax Services, Grant Thornton

  • In his opening remarks, Committee Chairman Dave Camp said, "Today’s hearing will examine the potential benefits to companies and workers of lowering marginal tax rates on business income. The hearing also will look at major elements of business and corporate taxation to evaluate policy options that can encourage job creation at home. The challenges created by the tax code – for job creators of all sizes – are many: high statutory rates, compliance and administrative burdens, the impact of temporary and expiring tax provisions…just to name a few. Pile on top of that a dizzying array of credits, deductions and exemptions, and it is no wonder that the tax code is distorting economic behavior.  America’s high and uncertain tax rates are barriers to growth and competition. With a combined federal-state corporate tax rate of 39.1 percent, we are well above the average of the rest of the industrialized world."  
  • The testimony of the business leaders on the panel focused on the need for a lower corporate tax rate and a less complex tax system. Mr. Galvin stated that: "First, U.S. tax policy should be equitable so as not to distort business decisions. Equitable tax policy treats all business income equally, notwithstanding the industry, how a company is structured, or whether it is headquartered in the U.S. or offshore. Second, tax reform should be revenue neutral. Our fragile economy would likely react negatively to a large money-grab through higher corporate taxes. In closing, we can’t create jobs at home if we punish those who headquarter here rather than overseas. There is no reason why American companies should not be able to compete and win anywhere in the world. But we need a level playing field." 
  • Ms. Brown focused on the impact of taxes on business decisions, stating that “[o]ne of the top strategic issues I face as CFO of Perrigo is the increasing disparity of the U.S. corporate tax rate relative to other countries and the impact this disparity has on our long-term decision-making." Ms. Brown recommended that the United States lower the corporate tax rate, make the tax code more certain, adopt a territorial tax system, and allow U.S. companies to access their overseas cash at a lower cost. Mr. Zrust also argued for a lower corporate tax rate, pointing out that other countries have lowered their corporate tax rates while the U.S. corporate rate has remained high.
  • Mr. Misplon, testifying on behalf of the National Retail Foundation, stated that "[t]he NRF supports business tax reform that will lower corporate tax rates and broaden the tax base. We believe this type of income tax reform will be good for the retail industry and good for the economy as a whole. The NRF urges the Committee to move forward with corporate income tax reform, and we offer whatever assistance we may provide in meeting this goal. Corporate income tax reform will encourage investment, create jobs and simplify administration of the tax system without shifting the burden to those that can least afford to pay."  Mr. Misplon also argued that “one of the most harmful things that could be done to our economy at this time would be to place a direct federal tax on consumption.”
  • Mr. Stutman cautioned Congress not to ignore pass-through entities in any reform effort, stating that “[d]ynamic organizations are frequently organized as pass-through entities and have become part of the backbone of American economic activity and a driving force behind expanding American employment. Pass-through businesses represent an ever-increasing share of the U.S. economy and are responsible for an increasing proportion of all business receipts, rising from 7% in 1980 to over 30% in 2007."
  • Testimony can be accessed via: http://waysandmeans.house.gov/Calendar/EventSingle.aspx?EventID=242050 
  • In conjunction with today’s hearing, the Joint Committee on Taxation issued a report titled, “Present Law And Background Relating To Selected Business Income Tax Provisions.” The document can be accessed via: http://www.jct.gov/
  • For additional information, contact Philip R. West - pwest@steptoe.com or  Amanda Varma -avarma@steptoe.com

CAMP REITERATES NEED FOR COMPREHENSIVE TAX REFORM:  In a White House meeting yesterday with House Republicans, Ways and Means Committee Chairman Dave Camp (R-MI) emphasized that comprehensive tax reform that promotes job creation cannot and should not be confused with tax hikes.  During the meeting, Chairman Camp pressed President Obama to take on comprehensive tax reform that is revenue neutral.  Camp stated, “We can all agree that the current code is too complex, too costly and too time consuming for families and businesses alike. However, we cannot confuse tax reform with raising taxes. Past reform efforts are clear on this – for the American people to buy into tax reform, we must not raise their taxes. Tax reform done the right way means more economic growth and more jobs. Any path forward for tax reform must be comprehensive to address both the individual and corporate rates. More than half of all business income is earned by pass through entities – most of which are small businesses. We cannot leave them out in the cold, nor can we provide relief to employers while leaving the American people to struggle with the cost and complexity of the current code.”

VOLUNTARY OFFSHORE DISCLOSURE DEADLINE EXTENDED: The IRS is offering certain taxpayers with undisclosed income from offshore accounts an opportunity to participate in a new, voluntary disclosure initiative in order to get current on their tax returns. The 2011 Offshore Voluntary Disclosure Initiative (OVDI) will be available only through August 31, 2011

REED SELECTED FOR WAYS AND MEANS COMMITTEE SEAT:  Today, House Republican Steering Committee voted to recommend that Rep. Tom Reed (R-NY) fill a vacant seat on the House Ways and Means Committee.

MISCELLANEOUS GUIDANCE RELEASED TODAY:

Announcement 2011-36 invites public comments on transitional issues and frequently asked questions involving the redesigned Form 990.

TAX BILLS INTRODUCED JUNE 1ST:

1. [112nd] H.R.2067 : To amend the Internal Revenue Code of 1986 to provide a credit against tax for hurricane and tornado mitigation expenditures.
Sponsor: Rep Bilirakis, Gus M. [FL-9] (introduced 6/1/2011)   Cosponsors (None)
Committees: House Ways and Means
Latest Major Action: 6/1/2011 Referred to House committee. Status: Referred to the House Committee on Ways and Means.

2. [112nd] H.R.2080 : To amend the Internal Revenue Code of 1986 to allow individuals either a credit against income tax or a deduction for expenses paid or incurred by reason of a voluntary or mandatory evacuation.
Sponsor: Rep Paul, Ron [TX-14] (introduced 6/1/2011)   Cosponsors (None)
Committees: House Ways and Means
Latest Major Action: 6/1/2011 Referred to House committee. Status: Referred to the House Committee on Ways and Means.

3. [112nd] H.R.2082 : To amend the Internal Revenue Code of 1986 to modify the work opportunity credit.
Sponsor: Rep Schock, Aaron [IL-18] (introduced 6/1/2011)   Cosponsors (1)
Committees: House Ways and Means; House Armed Services
Latest Major Action: 6/1/2011 Referred to House committee. Status: Referred to the Committee on Ways and Means, and in addition to the Committee on Armed Services, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.

TAX BILL INTRODUCED MAY 31ST:

H.R.2058 : To amend the Internal Revenue Code of 1986 to clarify the capital gain or loss treatment of the sale or exchange of mitigation credits earned by restoring wetlands, and for other purposes.
Sponsor: Rep Boustany, Charles W., Jr. [LA-7] (introduced 5/31/2011)   Cosponsors (None)
Latest Major Action: 5/31/2011 Referred to House committee. Status: Referred to the House Committee on Ways and Means.

INTERNAL REVENUE SERVICE - CIRCULAR 230 DISCLOSURE:
As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.

STEPTOE & JOHNSON LLP - TAX PRACTICE
Steptoe & Johnson LLP has one of the largest and most diverse law firm tax practices in the country. The practice covers the entire spectrum of federal taxation, including representation of businesses before the Congress, Treasury and the national office of the IRS; transactional planning for domestic and multinational corporations; complex audit and controversy work for corporations and other business interests contesting IRS adjustments; litigation before the Tax Court, Court of Federal Claims, district courts, courts of appeals and the Supreme Court. The firm's tax practice also encompasses all aspects of employee benefits (ERISA), executive compensation, tax-exempt organizations and charitable giving. Steptoe has an extensive state and local tax practice, representing an array of business clients on complex sales and use tax, corporate income tax and property tax matters, both advising those clients and handling audits, administrative appeals, and litigation for them. Read more information on Steptoe's tax practice.