Senator Unveils Proposals for International Tax Reform

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Senate Finance Committee chairman Max Baucus, D-Mont., has released the first in a series of discussion drafts for overhauling the Tax Code, with the first set of proposals focusing on international tax reform.

The proposal details ideas on how to reform international tax rules to spark economic growth, create jobs and make U.S. businesses more competitive. Additional tax reform discussion drafts will be released later this week.

Baucus and his counterpart in the House, Rep. Dave Camp, R-Mich., chairman of the tax-writing House Ways and Means Committee, have committed to drafting comprehensive tax reform legislation this year after making joint appearances around the country this year to listen to taxpayer concerns. However, the prospects for passing a tax reform package appear increasingly unlikely in the current atmosphere of partisan rancor and gridlock in Congress. But 2013 is seen as a better year to try to enact a tax overhaul than 2014, when lawmakers will be focused on the elections.

“Over the past three years, the Finance Committee has examined every aspect of the tax code in an effort to fix a broken system,” Baucus said in a statement. “Through hearings, option papers and blank slate proposals, we’ve received input from key stakeholders and nearly every member of the Senate. These discussion drafts are the next step. They represent proposals collected throughout this process and provide a path forward on tax reform. Some are Democratic ideas. Some are Republican ideas. The common link is they are all ideas worth exploring.”

Reactions from House Lawmakers

Camp issued a statement of support for Baucus’s tax reform discussion draft.

“Today’s release of Chairman Baucus’ international tax reform draft underscores the ongoing conversation about how we can fix our broken tax code so that America is a more attractive place to hire and invest,” camp said in a statement. “This is a critical debate that must take place if we are going to get our economy back on track. I applaud Chairman Baucus for his continued commitment to advancing tax reform forward amongst his Senate colleagues.”

The ranking Democratic member of the Ways and Means Committee, called for consideration of the proposals. “Senator Baucus has put forth some interesting ideas that need serious consideration,” said Rep. Sander Levin, D-Mich. “As reflected in his draft, tax reform must be driven by policy, not by rate targets. I agree with Senator Baucus that tax reform should raise significant revenue.  As Ways and Means Democrats have repeatedly said, the only path to the needed enactment of tax reform is a bipartisan one in both the House and Senate.”

While not a final plan, the staff discussion drafts aim to spur a conversation about areas where Republicans and Democrats may be able to reach agreement on how to fix the broken tax code.  Baucus is also looking for additional feedback from stakeholders and the American public as he continues his work to overhaul the Tax Code.  Feedback on the international tax reform discussion draft is requested by Jan. 17, 2014 and comments can be sent to:

The discussion draft released Tuesday focuses on overhauling the international tax system. Many of the major features of the current international tax system were created in the 1960s, Baucus’s office noted, and address a world that no longer exists. The complexity and uncertainty in the U.S. tax code puts America at a disadvantage in the global economy and stifles competition. 

Baucus believes tax reform should motivate businesses to bring jobs and money back to the U.S. The discussion draft outlines proposals to make the U.S. more attractive and competitive for multinationals to invest and create jobs, reduce incentives for U.S. companies to move jobs or the entire company overseas, end the trapped cash problem, allowing foreign profits to be invested in America again, make it harder for multinationals to shift profits to tax havens, which reduce our ability to invest in U.S. infrastructure, education and other vital initiatives.

Accounting Firms Weigh In

“As with the President’s framework for tax reform and Chairman Camp’s options for tax reform, Senator Baucus’s discussion draft on international tax reform, released today, contributes to the growing consensus that our international tax rules need to change,” said Manal Corwin, national leader of the International Tax practice of KPMG LLP and former deputy assistant secretary for tax policy for international tax affairs at the U.S. Treasury Department. “While there are design differences in the various approaches offered by the Administration, Chairman Camp, and Senator Baucus, significantly, all three approaches reflect concerns about and incorporate mechanisms to help address base erosion. Senator Baucus’s discussion draft proposes to adopt a minimum tax on offshore earnings to help address base erosion and profit shifting (offering two alternative design approaches for implementation). The concept of adopting a minimum tax on offshore earnings was also a key feature of the President’s framework for tax reform.”

Eric Solomon, co-director of Ernst & Young’s National Tax practice in Washington, D.C., also sees value in the Baucus’s discussion draft. "Senator Baucus's proposal is the product of tremendous time and effort over the past two years,” he said. “Laying that groundwork is a prerequisite for proposing successful tax reform.  Passing tax reform will require commitment and leadership at all levels of government. The discussion draft would fundamentally shift the way US businesses pay taxes on their foreign operations. The US has the highest statutory corporate tax rate in the world. In order to meet Senator Baucus's stated goals of making US businesses more competitive globally, there needs to be a substantial reduction in the tax rate.”

Corporate Tax Lobbyists

While Baucus believes tax reform as a whole should raise significant revenue for deficit reduction, the international tax reform discussion draft is intended to be long-term revenue neutral. “We need to bring our tax system into the 21st century and make the U.S. more competitive,” he said. “That’s what tax reform can do—it can help America overcome the competitiveness crisis that’s driving businesses and jobs overseas.”

The RATE Coalition, a group lobbying for lowering the corporate tax rate, insisted that revenue from closing loopholes should go toward lowering overall tax rates. Co-Chairs Elaine Kamarck, a former White House adviser to President Bill Clinton and Vice President Al Gore, and James P. Pinkerton, a former White House domestic policy adviser to Presidents Ronald Reagan and George H.W. Bush, issued their own statement on the progress of comprehensive tax reform.

“Leaders in both parties agree on the need for comprehensive tax reform," they said. "The RATE Coalition supports their efforts to move forward on legislation that lowers the corporate rate to an internationally competitive level and simplifies the code. The 113th Congress has always been the best opportunity to pass true reform and that remains the case. As talks on tax reform progress it is important that negotiators understand that closing loopholes is key to fundamental reform, though they should be included only as part of a tax reform agreement. Revenue directed at anything else will imperil a future agreement and impede America’s ability to compete in the international marketplace.”

Another corporate lobbying group, the LIFT America Coalition, was more critical of the initial discussion draft. “The Senate Finance discussion draft released today represents yet another milestone in the long overdue effort to overhaul America’s international tax laws, yet instead of moving the United States closer to a more competitive tax system, the draft’s provisions actually take the nation further away from the pro-growth, pro-jobs business tax reform that American companies and workers are seeking,” said the group.

A different corporate lobbying group, the Alliance for Competitive Taxation, also panned the proposals. “While we are encouraged by Chairman Baucus’ continued commitment to pass comprehensive tax reform, we are concerned that the international reform ideas in the staff draft undermine the stated goals of creating jobs, generating growth, and making America more competitive around the world,” the group said in a statement. “The chairman has recognized how today's uncompetitive tax code is already leading to the loss of U.S. companies. Unfortunately, many of these proposals would put the U.S. tax system even more out of line with the rest of the world. We are concerned that this staff proposal, if enacted, would make a bad system worse with anti-competitive measures that favor foreign companies and would result in even more foreign acquisitions of American businesses and an even greater loss of U.S. jobs.”

Baucus's office said that additional tax reform discussion drafts will be released later this week. They include proposals to streamline and reduce overly burdensome and costly tax administration rules, and to reform cost recovery and accounting. The discussion drafts are based on bipartisan ideas and incorporate bills introduced by both Republicans and Democrats. 

A one-page summary can be found here. An overview of the discussion draft along with a detailed summary can be found here.  The full discussion draft in legislative language can be found here, here and here.

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