U.S. Tax Reform – Comparison of Chairman Camp and White House Budget Proposals

Previous blog posts discussed the tax reform discussion draft put forward by Chairman Camp and the 2015 White House Budget from President Obama.  Both proposals detail substantial changes to the current U.S. tax system, however neither is likely to pass in its current form.  This blog post will review where President Obama’s White House Budget and Chairman Camp’s discussion draft are in alignment, because these areas might form the basis of comprehensive tax reform in the coming months and years.

At a high level, both proposals seek to reduce the tax burden on individual taxpayers.  Chairman Camp would do this through increasing the standard deduction and reducing tax rates, whereas President Obama would expand the Earned Income Tax Credit.

The two proposals have far more common ground in the area of business taxation.  Both propose eliminating the S-Corporation exemption from self-employment taxation and, more surprisingly, both more or less agree on the need to change the taxation of carried interest.  Both proposals would also eliminate LIFO inventory accounting.

Both proposals suggest eliminating the tax preferences for the oil, coal, and natural gas industries, however Chairman Camp’s proposal includes this among the elimination of many other preferences, while President Obama wants to make clean energy tax credits permanent.  It seems unlikely that Congress will agree to eliminate the oil, coal, and natural gas tax preferences while retaining the clean energy ones, so this common ground is unlikely to come to anything.  Both proposals also include a new tax on banks, although Chairman Camp proposes a tax on assets, while President Obama proposes a tax on liabilities.

The taxation of overseas intangibles would change under both proposals with Chairman Camp suggesting the taxation of “Foreign Base Company Intangible Income” and President Obama adding a new type of Subpart F income to cover digital sales.  Both proposals agree on the need to bring offshore profits back into the US, but disagree on how to achieve that goal. President Obama wants to declare a deemed repatriation of the profits, while Chairman Camp would use a 95% dividend received deduction to substantially reduce the tax cost of repatriating overseas profits.

While it is always difficult to predict what Congress will do with tax reform, of all the major changes proposed, the taxation of overseas intangibles and elimination of the S-Corp self-employment tax exemption do seem like realistic possibilities for change.

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Roger Royse
rroyse@rroyselaw.com

Roger Royse, the founder of the Royse Law Firm, works with companies ranging from newly formed tech startups to publicly traded multinationals in a variety of industries. Roger regularly advises on complex tax structuring, high stakes business negotiations and large international financial transactions. Practicing business and tax law since 1984, Roger’s background includes work with prominent San Francisco Bay area law firms, as well as Milbank, Tweed, Hadley and McCloy in New York City.
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