Measures he championed in a comprehensive tax reform bill in Congress last year are still needed to grow the U.S. economy and improve its global competitiveness, former Rep. Dave Camp told AICPA members Nov. 2 at the 2015 National Tax Conference in Washington.
Camp retired from the House of Representatives in 2015 after 24 years representing Michigan as a Republican—four of them as chairman of the Ways and Means Committee—and he is now a senior adviser with PwC. He described his view of the drivers of and outlook for U.S. tax reform.
As the sponsor of the Tax Reform Act of 2014, H.R. 1, Camp sought to provide a blueprint for broadening the U.S. tax base and lowering rates, while addressing international tax issues and encouraging domestic economic growth and innovation. While that bill was never voted on, its broader goals remain relevant, Camp said, and some of its measures, such as new partnership examination rules enacted recently as part of a budget deal, remain in play legislatively (Bipartisan Budget Act of 2015, P.L. 114-74, see the preceding item).
The recent election of Rep. Paul Ryan, R-Wis., as speaker of the House and his replacement as the chairman of Ways and Means may portend progress toward tax reform that has been stalled in recent months, Camp said. With Ryan's own role in and priority of moving tax reform forward, there may be a greater impetus and ability to negotiate with the White House on tax issues.
"With Paul Ryan as speaker, now they can actually get the cogs and wheels turning and engage the administration at a very high level," he said.
But a still bigger shoe that has yet to drop is the election of the next president, he said. A number of the presidential candidates' proposals have been "surprisingly detailed" for this early in the campaign and emphasize issues similar to those in H.R. 1, Camp said.
"It really looks like a jobs-and-economy election," he said. "But, clearly, international issues could overwhelm that at any moment, or other issues could take that away."
While the House will likely remain in Republican control after the 2016 election, Democrats could regain control of the Senate—but perhaps only until 2018—he said, which could complicate prospects for tax reform.
Meanwhile, although legislative leaders and proposed tax legislation may appear to be waiting on the sidelines while the campaigns play out, progress is nonetheless being made behind the scenes, since ideas often are picked up and introduced or attached to other legislation later, when they are needed and can generate more support.
"I know people will say there's nothing happening until next year, but it depends on what your definition of 'nothing' is," Camp said.
Some of that groundwork is even bipartisan, such as proposals for a "patent box" tax preference for domestic intellectual property, he said.
Permanently deciding the fate of tax extenders—scores of temporary but perennially reenacted provisions, was an early, primary motivation for his tax reform efforts, Camp said.
"We're the only nation in the world that lets a huge chunk of its tax code expire, often for a year, and then retroactively put it back in place for a year and sometimes going forward for a year," which is "unacceptable" for taxpayer certainty, he said.
Global Tax Policies
Another key driver of tax reform is economic growth domestically and the U.S. economy's competitiveness globally, Camp said. Besides having what he said is the world's highest statutory corporate tax rate and second-highest effective rate, the United States is one of the few nations that taxes worldwide income rather than income just from its own jurisdiction. One consequence of this is more than $2.3 trillion of corporate foreign-earned profits "trapped" overseas, he said. Another is an accelerating trend of inversions, or mergers by U.S. corporations with foreign ones, transferring their tax home overseas.
"Our tax code is so out of step that we're actually a takeover target around the world," he said.
International tax policies have been further highlighted by the recent base erosion and profit-shifting report and recommendations by the Organisation for Economic Co-operation and Development, he noted.
The rate lowering of Camp's and other Republicans' proposals was countered by President Barack Obama's insistence to the contrary for individual rates, which led to a stalemate, especially since Camp's plan sought to be "revenue-neutral" overall. Since then, even the international issues that remained have stalled, partly because of the priority of debates on reauthorizing funding for highways.
Other factors impeding or complicating tax reform include fiscal deadlines that lead to "brinksmanship" and a lack of consensus on how much revenue the government should raise and how much it should spend "in a macro sense."