Ohio Tax. Wednesday, January 28, :00 a.m. to 10:45 a.m. Tuesday & Wednesday, January 27 28, 2015 Hya Regency Columbus, Columbus, Ohio

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1 24th Annual Tuesday & Wednesday, January 27 28, 2015 Hya Regency Columbus, Columbus, Ohio Ohio Tax America s Uncompetitive 35% Corporate Tax Rate Tax Reform & Lowering Corporate Tax Rate to Stimulate the Economy, Eliminate Loopholes, Solve the Inversion Problem & Level the Economic Playing Field & How the US Must Help American Corporations Compete with Canada, Great Britain & Ireland Who are Significantly Undercutting the U.S. Corporate Tax Rate Caroline L. Harris Chief Tax Policy Counsel & Executive Director of Tax Policy U.S. Chamber of Commerce Washington, DC Wednesday, January 28, :00 a.m. to 10:45 a.m.

2 Caroline L. Harris Chief Tax Counsel and Executive Director of Tax Policy U.S. Chamber of Commerce Caroline L. Harris is chief tax counsel and executive director of tax policy at the U.S. Chamber of Commerce. She directs the development, promotion, and publication of the Chamber s policy on tax-related matters. She analyzes tax legislation, other legislation with revenue-raising provisions, and tax reform proposals, and submits comments, Hill letters, and testimony to Congress and regulatory agencies. Harris routinely meets with members of Congress and their staffs, the administration, and regulatory agencies to promote the Chamber s tax policy. Harris also frequently speaks to business leaders, local chambers of commerce, other trade associations, and member companies to educate them on the Chamber s tax policy priorities and current legislative outlook. She regularly meets with Chamber members to assess what provisions affect their businesses. In addition, Harris publicizes the Chamber s tax policy through media communications with the Dow Jones and the Financial Times. She contributes opinion pieces in notable newspapers, such as The Washington Post and The Washington Times and comments on tax policy on national television networks, including Bloomberg and Fox Business. She also contributes to the U.S. Chamber s monthly magazine and publishes a monthly column in Tax Notes. Harris serves as the Committee Executive for the Chamber s Taxation Committee and represents the Chamber on the Steering Committee of several national tax coalitions. Harris is admitted to the District of Columbia Bar. She is a member of the American Bar Association and its Tax Section. Harris received a B.A. in economics from the University of Wisconsin Madison and her J.D. from The George Washington University School of Law. She received a Master of Laws in Taxation, with distinction, from the Georgetown University Law Center. Harris hails from Philadelphia and currently resides on Capitol Hill with her husband, Ethan H Street, NW Washington, DC The U.S. Chamber of Commerce is the world s largest business federation representing the interests of more than 3 million businesses of all sizes, sectors, and regions, as well as state and local chambers and industry associations. Rev. Aug. 2011

3 Tax Outlook: 2015 and Beyond Caroline Harris, Executive Director, Chief Tax Policy Counsel

4 Where Did We End the 113 th? What was addressed? Extenders extension of everything that expired at end of 2013 thru 2014 Inversions IRS issued Notice What wasn t addressed? Tax reform MFA, BATSA, Mobile Workforce, etc. Holding Steady Medical device tax repeal Remained in the mix and has better odds in an R controlled Congress

5 The New Congress Election Results House: Republicans 246 (+12) Democrats 188 Senate: Republicans 54 (+8) Democrats 46 Observation Rs hold a 28 seat majority but 25 Rs voted against Speaker Boehner which suggests they could break with the R House caucus on other issues

6 The New Congress Historical Analysis For the first time since the Republican Revolution of 1994, the voters have swept in a wave that gave Republicans control of the Senate and the largest House majority since The seat gain in the Senate is the largest since Republicans picked up a dozen seats in 1980 with the help of Ronald Reagan s landslide election as president. Rs unseated D incumbents in 5 states Alaska, Arkansas, Colorado, Louisiana, and North Carolina Picked up seats of retiring Democratic incumbents in Iowa, Montana, South Dakota & West Virginia The 114 th Congress has a record number of women members more than 100 West Virginia and Iowa elected their first female Senators Half of the 60 senators who voted for Obama's health care overhaul are no longer in the Senate. Nineteen of them retired or resigned, eight were defeated for re election, and three died in office.

7 The New Congress Ways & Means Leadership: Chairman Ryan (R 1 st ), Ranking Member Levin (D 9 th ) New Members Holding (R NC 13 th ): former prosecutor Meehan (R PA 7 th ): former prosecutor; NHL referee Noem (R SD At Large): farmer/ rancher; ag/trade focus Smith (R MO 8 th ): farmer/lawyer

8 The New Congress HWM Chairman Ryan Prior to becoming HWM Chairman, then Budget Chairman Ryan opined: Mortgage interest deduction: Drop mortgage debt amount where can write off interest from $1M to $500K Earned income tax credit (EITC): One of the federal government s most effective anti poverty programs; expand for childless workers. Ryan has proposed doubling the maximum credit for them as well as phasing it in more quickly, calling it a better alternative than raising the minimum wage. Charitable deduction: As is State/local income tax deduction: Eliminate; low tax states shouldn t have to subsidize high tax states Health care exclusion: End employer tax exclusion companies get for providing workers with health insurance; replace with refundable credit that individuals could instead use to buy coverage on own or thru employer Extenders: Permanently revive some extenders because would make it easier to finance a tax code overhaul Dynamic Scoring: Supports reality based scoring to get more accurate forecasts Rates: Top rate of 25% for individual and corporate Camp tax plan: Good starting point Overall tax levels: Cap total tax revenues at 19% nation s GDP (bit higher than 18.3% today)

9 The New Congress Senate Finance Chairman Orrin Hatch (R Utah), Ranking Member Ron Wyden (D OR) Committee Make Up New Members: Sen. Dan Coats (R Indiana) Sen. Dean Heller (R Nevada) Sen. Tim Scott (R South Carolina)

10 The New Congress SFC Chairman Hatch 7 Principles for Tax Reform Should promote economic growth and reduce economic distortions. It must eliminate the uncompetitive nature of the code and reduce disincentives to work, entrepreneurship, savings, & investment. Should reduce tax expenditures to broaden the tax base and simultaneously lower tax rates. Simpler system should reduce complexities in the tax code to lower compliance burdens, increase efficiency, and free up resources for productive activities, including job creation. Permanence and competitiveness are key. Certainty and internationally competitive. Tax reform should substantially lower the corporate tax rate and move us to a territorial tax system, with base erosion protections, to ensure that American job creators are on a level playing field with their foreign competitors. Should promote savings and investment Revenue neutral

11 The Path Forward Overview Cliff Diving/Pressure Point Dates February DHS funding expires March healthcare/doc Fix (Medicare provider reimbursement) March 15 Debt ceiling suspension end May highway bill/trust fund June Export Import Bank June/July/August debt ceiling October Potential Government Shutdown and Return of Sequester. Ryan Murray 2 year budget agreement on sequester ends alongside FY15 CROmnibus December 31 Internet Tax Freedom Act expires Gridlock?

12 The 114 th Congress In General 3 buckets: Big/macro bills (like trade agreements) Anything with an expiration date the cliffs (Doc Fix, Highway Bill, debt ceiling, etc.) Micro/industry specific bills (energy legislation, patent reform, cyber security, etc.)

13 The 114 th Congress Issues to Watch Tax Extenders Provisions that expired at the end of 2013 were extended at the end of year thru end of 2014 (aka 2 weeks) Unclear when will be addressed for 2015 Question of whether if addressing early removes pressure to do tax reform

14 The 114 th Congress Issues to Watch International Tax Inversions: In Sept. 2014, IRS issued Notice to curb attractiveness of inversions; have indicated additional guidance relating to earnings stripping (shift revenue to lowtax countries, expenses to high tax countries where deductions most valuable) OECD s Base Erosion and Profit Shifting (BEPS) project: OECD recommendations? Do individual nations adopt any of the changes?

15 The 114 th Congress Issues to Watch Health Care Issues Medical Device Tax Repeal House: Paulsen bill to repeal, refund excise taxes paid since went into effect in 2013 Cosponsored by more than ½ House members, including 28 Ds Expected to move through Committee and full House in coming weeks No revenue offsets Senate: Hatch bill to repeal, no offset, 5 D co sponsors White House: Indicates willing to review the tax in a broader discussion of the ACA, but says must find revenue offset

16 The 114 th Congress Issues to Watch Internet/State Tax Issues Cliff ITFA expires Dec. 31, 2015 Is it a catalyst for host of other bills creating federal bright line standards for when state can levy a tax? MFA BATSA Mobile Workforce?

17 The 114 th Congress Issues to Watch Messaging Bills Van Hollen middle class tax incentives, FTT Whitehouse Buffet tax Doggett/Whitehouse Stop Tax Haven Abuse Act

18 The 114 th Congress Issues to Watch Tax Reform Chamber priorities? Areas of agreement? Challenges Remaining? Dynamic Scoring? Reconciliation? Party/Intra Party Lines?

19 Tax Reform Chamber Priorities Principles: Comprehensive, Internationally competitive, Cost recovery, Certainty, Simplicity, Neutrality, Transition rules Goal: Pro growth tax reform is primarily a long run issue. The benefits of comprehensive tax reform would be stronger growth, more investment, greater penetration in foreign markets and stronger productivity growth.

20 Tax Reform Areas of Agreement Lower the rates, broaden the base: General agreement that will look like 1986, aka cut provisions, use at least some of that revenue for rate reduction The corporate rate is too high: The tax rate for corporations tops out at 35% percent, the highest among developed OECD countries. Republicans: 25% Camp draft, Ryan budget President: 2012 White Paper proposed cutting to 28% Some tax breaks are good: For example, both the President s budgets and a bipartisan group of lawmakers have long backed making the R&D credit permanent.

21 Tax Reform Challenges Remaining Business first?: In corporate only overhaul, pass thru entities would be left behind b/c they pay tax under individual side of code White House: corporate only reform, higher taxes on successful small businesses (i.e., Buffett tax) Republicans: SFC Chair Hatch & Former HWM Chair Camp comprehensive, i.e. address both C side, S side of Code Current HWM Chair Ryan:?? The end product?: Democrats: tax reform way to generate higher revenues for increased government spending Republicans: revenue from tax reform should be used to lower rates and generate a more pro growth tax system What to cut?: Democrats and Republicans appear to have very different ideas. Democrats: tougher international tax provisions, more taxes on higher income earners, successful small businesses Republicans: make the code more internationally competitive, lower taxes Beloved expenditures Popular provisions, like mortgage interest and charitable contributions, are expensive, on individual side On the business side, proposals to extend cost recovery periods have drawn sharp criticism from the business community

22 Tax Reform Dynamic Scoring? Static vs Dynamic Scoring Static: measures certain behavioral responses to changes to the tax code and entitlement programs but assumes those policy changes do not influence the overall size of the economy Dynamic: Budget rules that project tax cuts can at least help to pay for themselves by spurring more economic growth House Implementation H Res. 5 Approved January 6, includes provision requiring JCT staff and CBO to use dynamic scoring for major legislation Only binding in the House and does not apply in the Senate. How it works: Requires JCT and CBO to include budgetary effects of changes in economic output, employment, capital stock, and other macroeconomic variables over a 20 year period in their revenue estimates for major legislation Party line split Republicans: dynamic scoring is more accurate; would make the math a bit easier for tax reform Hatch open to using as would be helpful in evaluating bills, but cautions it is not a magic elixir Democrats: criticize as attempt to unreasonably justify tax cuts Levin, Schumer, Sanders vocal opponents

23 Tax Reform Reconciliation? A budget resolution may include reconciliation instructions to specific committees requiring them to develop legislation by a date certain to achieve certain budgetary savings. Reconciliation instructions must include: the Committee to which the instruction is directed the deadline for the Committee to report action specific aggregate dollar amounts for revenues, outlays, the deficit, or the public debt the time period over which those budgetary changes must be achieved. Challenges? 51 vote threshold? 10 year expiration?

24 Tax Reform Party/Intra Party Lines? Inter party divisions: Republicans generally believe tax reform has to tackle the individual side White House has said corporate only ok but top Dem aides on the Hill have said it would be difficult to leave out individuals who feel the economic recovery skipped them over. Obama and congressional Democrats also had their share of divisions in the recent debate over tax extenders. Meanwhile, some of the loudest critics of Camp draft were Republicans, most notably those close to financials, which objected to bank tax Bottom Line: Divide over tax reform goes both across and within party lines.

25 Question and Answer? Baron Harris