As Congress prepares to tackle tax reform, disagreement among Republicans on how to approach the issue may stifle efforts. The House Ways and Means and Senate Finance Committees are currently drafting tax reform legislation. However, the details of such legislation remain unclear, even among some congressional taxwriters.
White House Press Secretary Sarah Sanders said in an August 8 tweet that President Trump had productive conversations on tax reform with House Speaker Paul Ryan, R-Wis., and other Congressmen. And, the administration and top lawmakers recently released a joint statement that presents a united front on tax reform legislation. However, key details, like what personal exemptions will remain and the proposed individual and corporate tax rates, remain uncertain.
Small Business Benefits
Senate Small Business and Entrepreneurship Committee Chairman Jim Risch, R-Ida., and ranking member Jeanne Shaheen, D-N.H., sent a bipartisan letter during the week of July 31 to SFC Chairman Orrin G. Hatch, R-Utah, and ranking member Ron Wyden, D-Ore. The lawmakers urged comprehensive tax reform that will benefit small businesses. “Small businesses are the backbone of our economy, creating two out of every three net new jobs in the U.S.,” Risch and Shaheen wrote. “It is essential that any tax reform considered by the Senate take into account the unique burden the federal tax code imposes on small businesses and ensure that Main Street businesses benefit from tax reform.”
Republican lawmakers often extol the importance of tax rate reductions for passthrough entities. However, Democrats caution against any changes that would allow wealthy individuals to benefit from lower rates for passthrough businesses. Risch and Shaheen both cautioned SFC leaders against allowing wealthy taxpayers to take advantage of passthrough rates. “Any reforms to the individual side of the code should focus on benefitting truly small businesses, and any potential preference for passthrough business income must include appropriate safeguards in order to prevent abuse and mischaracterization of income,” they wrote.
Scope of Tax Reform
According to several reports, the most significant challenges for Republicans is agreeing to the scope of any tax reform legislation. After the failed health care reform efforts, some lawmakers think a broad, comprehensive tax reform package is not possible.
“An issue that has favor of some of our members is doing something smaller, just an individual rate cut and push the other stuff until later, but I don’t think we want to give up on comprehensive (tax reform),” SFC member John Thune, R-S.D. said. “My goal is to do a big bold reform bill. I know there are some advocates out there for just doing something small and kind of incremental, but that doesn’t solve most of our problems.”
Meanwhile, Democrats remain opposed to any tax reform proposals that could benefit the wealthy, which could make bipartisan talks difficult. However, Republicans are calling for tax rate cuts across the board for all taxpayers.
Adding to the complexity, Congress has at least two other competing priorities when it returns to Washington. Congress faces September deadlines to pass a new federal budget and raise the debt ceiling as the new fiscal year, beginning October 1, approaches.
By Jessica Jeane, Wolters Kluwer News Staff