As 2015 came to a close, NRCA scored key victories on a number of tax priorities with the passage of the Protecting Americans from Tax Hikes (PATH) Act. For years, business owners relied on Congress to periodically renew a package of tax provisions, but lawmakers constantly were waiting until the eleventh hour to pass them. Thankfully, business owners have now gained some certainty with a number of tax provisions being made permanent or extended for five years.
A perennial problem
NRCA had hoped the provisions in the PATH Act would be addressed in the context of comprehensive, permanent tax reform. With many of the provisions made permanent, the baseline budget figure will be reduced when Congress goes on to address reforming the entire tax code, possibly in 2017. Republicans would like to pass a revenue-neutral tax reform package, which means the U.S. Treasury would take in the same amount of revenue it currently does while simplifying the tax code. Democrats would like to see tax increases on the wealthiest taxpayers to help reduce the national debt.
Attempts to reform the tax code have been made in recent years, but the partisan divide between Democrats and Republicans has proved impossible to overcome. Some politicians have suggested taking a step-by-step approach that would address different segments of the code in hopes a bipartisan agreement can be made. Both sides agree the tax code is globally uncompetitive, which has led to a number of U.S. companies seeking to move their headquarters overseas to take advantage of lower tax rates. These "inversions" have led lawmakers to seek ways to reform the international portion of the tax code, and the topic will be the focus of reform efforts in 2016.
The chairmen of the tax-writing committees have expressed interest in bringing forth a proposal this year to help international companies reduce their tax liabilities and keep jobs in the U.S. Sen. Orrin Hatch (R-Utah) recently announced he plans to put together a proposal to eliminate the double taxation of corporate income. However, it is highly unlikely any major reforms will happen while President Obama is in office. NRCA will continue to advocate for comprehensive tax reform that lowers the tax rates for all businesses.
It's all about the rate
With the passage of the so-called "fiscal cliff" in 2012, many pass-through businesses (those who pay their business taxes through the individual tax code) saw their tax rates increase to 39.6 percent while corporate taxes remained at 35 percent. This was part of President Obama's attempts to raise taxes on the highest income tax bracket. The problem is many of these businesses employ a majority of workers in the U.S. According to an Ernst & Young study, pass-through businesses employ 54 percent of the private-sector workforce. If business owners are forced to pay more taxes, they will have less capital going toward growing their businesses and sustaining or creating new jobs.
NRCA has long advocated three key principles for tax reform. First, it must be comprehensive and lower the corporate and individual tax rates. The consensus between Republicans and Democrats seems to be for a rate somewhere between 20 and 28 percent. Second, the rates should be similar. And third, Congress should work to reduce or eliminate the double tax on corporate taxes. Corporations pay taxes at the entity level and then profits are taxed again at the shareholder level.
The next chapter
NRCA, along with more than 120 trade associations, will use these principles to help drive the conversation as Congress and the presidential candidates discuss ways to reform the tax code. NRCA has taken the lead and has been invited to join the steering committee for a new coalition, Parity for Main Street Employers, that will focus on tax reform principles. This will help NRCA gain visibility and build stronger relationships with lawmakers, as well as help combat other coalitions aimed at more narrow reforms.
This year will be critical in laying the groundwork to pass comprehensive tax reform in 2017. But political dynamics could shift depending on who wins the White House. It is widely thought the House will stay in Republican control, but the Senate chamber could flip to the Democrats after the November elections where a number of swing-state Republicans are up for re-election.
Whatever dynamics present themselves, NRCA will continue to fight for its members.
Andrew Felz is NRCA's manager of federal affairs.
