House Ways and Means Committee chairman Paul Ryan, R-Wis., explained his tax reform plans Tuesday during a speech before the American Institute of CPAs at the AICPA’s Spring Meeting of Council in Washington, D.C.
“One of the concerns that we have, now that we have both the House and the Senate, is the uncertainty that’s been plaguing our economy, and one of the primary sources of uncertainty in this economy today has been our Tax Code,” said Ryan, who ran as the Republican vice presidential nominee in the 2012 election. “As some of you may know, this week, we’re running another one of our tax extender bills, the R&D credit, to try to make that permanent, and to try to address the uncertainty that’s out there in the economy.”
He said Republicans also hope to address the uncertainty over the extension of Section 179 bonus depreciation. These and other tax extender provisions were only passed at the end of last year, and were only extended retroactively.
“We have early on in the Ways and Means Committee, and then on the floor of the House of Representatives, been trying to pass these tax extender bills, so that we don’t have a repeat of what happened last year,” said Ryan. “What happened last year was that you had to wait until December 11 to find out if these provisions, which are typically in the Code, were going to continue or not.”
He gave the example of one of his constituents, a tractor company owner in Janesville, Wis., who was uncertain about whether tractor purchases would qualify for the Section 179 deduction. “People had to make a decision from December 11 to December 31 whether or not they were going to have their ability to save under Section 179 to purchase their tractors,” said Ryan. “That tax extender was retroactive for that period, and then come January 1, it went away again. We don’t want to see things like that happening again. That is why we in the House Ways and Means Committee and the House of Representatives are moving now to try to deal with these issues to get them taken care of as quickly as we can, knowing that we have negotiations on the extension with the administration, to at least send the signal to the economy that this is our intention and this is where we’re going.”
Republicans have their own plans for tax reform as well. “We as Republicans in Congress would like to have comprehensive tax reform across the board,” said Ryan. “It’s very important to know, as you probably know, most businesses in America are not C Corps. Most businesses in America pay their taxes as individuals, Sub S’es, LLCs, sole proprietorships. You know the story better than anybody else in the country. For us, tax reform is broadening the base before lowering the rates across the board so that we can get our rates back to a competitive area.”
Ryan pointed out that in Canada, businesses are taxed at a rate of 15 percent, and the average tax rate for businesses in industrialized countries is 25 percent. In contrast, for C corporations in the U.S., the top marginal tax rate is 35 percent, and many business owners face top tax rates of over 44 percent when other taxes such as the 3.8 percent Net Investment Income Tax and the 0.9 percent Additional Medicare Tax are added to the 39.6 percent top tax rate for individuals.
“This is not good for American businesses,” said Ryan. “This is not good for America’s competitiveness.”
He pointed out that in 1986, President Ronald Reagan accomplished across-the-board tax reform with congressional leaders on a bipartisan basis with a top rate of 28 percent, building on earlier tax reforms of 1981. “It kicked off a worldwide tax reform craze across the world where countries lowered their tax rates,” said Ryan. “We are now on the receiving end of that global tax reform movement, and we are on the bad receiving end of that global tax reform movement, because we have one of the worst tax codes in the industrialized world. So we know that we need to get on top of this issue and get our rates down, fix the mess we have with this byzantine worldwide tax system that is uncompetitive, pushing capital overseas, triggering corporate takeovers of foreign companies buying U.S. companies and encouraging inversions. We know this is something that has to be dealt with. The challenge we have at this moment, though, is in this divided government, we have a President—not to be too partisan—who will not lower individual rates. So in our mind, there’s a problem with that.”
Republicans on the House Ways and Means Committee are exploring what they can do now with passing individual tax reform provisions in the current Congress, with hopes of winning the White House in 2016 so they can enact comprehensive tax reform in the next Congress. “We want to have a good down payment on tax reform in this Congress,” said Ryan.
One of their priorities is repealing the Affordable Care Act, which Ryan blamed for health care providers going bankrupt and for an “implosion” of the marketplace. He predicted the “worst is yet to come with the Affordable Care Act,” as provisions such as the employer mandate take effect.
“Tax reform is paramount,” he said. “We can have another great American century, but you need to have fundamental tax reform.”
A Democratic senator, Sen. Heidi Heitkamp, D-N.D., ranking member of the Senate Banking Subcommittee on National Security and International Finance, also addressed the issue of tax reform in a separate speech Tuesday at the AICPA Spring Council meeting.
“Either do it, or stop saying you’re going to do it,” she said. “By saying you’re going to do tax reform, you’ve created tremendous amounts of uncertainty. People are waiting with their investments, saying, I don’t know what the depreciation is going to look like. I don’t know if I’m going to get these research credits. I don’t know what the Tax Code is going to look like, or what the rates are going to look like.’ No argument that tax reform is an important issue that we need to confront.”
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