May 01, 2014 U.S. Tax Reform – Introduction
On February 26, 2014, Chairman Camp of the House Ways and Means Committee released his long-anticipated discussion draft for U.S. tax reform. The discussion draft comes in at almost 1,000 pages (not including JCT analysis) and, if passed, would constitute the most substantial reform of the U.S. tax system since 1986. Surprisingly, given the current political climate, the draft also appears to be relatively bipartisan which means there is plenty in here for both parties to support. Given the size of the draft, and the complexity of the issues discussed, the bill is unlikely to pass in its current form and any enactment of its provisions will probably not happen before 2017.
This blog post gives a brief overview of Chairman Camp’s draft and the economic analysis conducted by the Joint Committee on Taxation. A second blog post focuses on how the proposed tax reform affects individuals and a third post looks at how it affects businesses.
In addition to Chairman Camp’s draft, the White House recently released its 2015 Budget which also contains proposals for tax reform and this is discussed in a fourth blog post. Finally, a fifth post is devoted to a comparison of the White House Budget and Chairman Camp’s discussion draft.
Chairman Camp’s goal with this tax reform draft is to get headline tax rates down to 25% for both individuals and businesses. Compared to the rest of the developed world, the U.S. has high statutory tax rates topping out at 35% for businesses and 39.6% for individuals, not including any state and local taxes that may apply.
Reducing the tax rate to 25% while remaining revenue neutral was always going to involve broadening the tax base and that is the approach adopted by Chairman Camp in his discussion draft. Even after eliminating a multitude of tax credits and deductions, Chairman Camp was unable to bring the individual tax rate down below 35%.
While the draft is revenue neutral, the tax effects are not distributed equally between individuals and businesses. The JCT analysis shows a shift in the tax burden of $580 billion from individuals to businesses. This is a surprising result given the stated goal of making U.S. companies more competitive globally. The next two blog posts analyze how this tax burden-shift arises, while the final two look at President Obama’s proposals in the 2015 Budget and how the two tax reform proposals compare.Disclaimer: This blog and website are public sources of general information concerning our firm and its lawyers, as well as the information presented. They are intended, but not promised or guaranteed, to be correct, complete, and up-to-date as of the date posted. This blog and website are not intended to be, and are not, sources of legal opinion or advice. The materials, information, and communications on this blog and website do not apply to any particular person, entity, or situation, and do not apply to you or to your specific situation. You will need to consult with an attorney and/or other appropriate professional about your specific situation. Thank you.