Tax Reform, Lower Rates Among Top Legislative Goals, Ryan Tells AICPA

Tax rates should be no higher than 25% for both individual and corporate taxpayers, Rep. Paul D. Ryan, R-Wis., told members of the AICPA’s spring Council meeting Tuesday in Washington.

Ryan, chairman of the House Ways and Means Committee, federal budget architect, and a former vice presidential candidate, outlined his priorities since taking over the committee leadership at the beginning of the current session of Congress. The job is one reason Ryan, who was Mitt Romney’s running mate in 2012, is not himself running for president in 2016, he said, since it gives him a chance to steer reforming the tax Code.

“This is what I’ve been fighting for since I became a member of Congress,” said Ryan, who was first elected to the House in 1998.

Ways and Means has already made a “down payment” on tax reform by passing out of committee bills that would make permanent certain “extender” provisions, he said. They include the credit for research and development activities, higher expensing limits for business depreciable property, and certain deductions for charitable contributions. As temporary provisions, they have been renewed every year or two, most recently last December. This stopgap approach plagues the U.S. economy with uncertainty, Ryan said.

“That’s no way to run a railroad; we don’t want to see that happen again,” he said.

Broader goals for tax reform, which Ryan hopes to accomplish next year, include lowering rates and changing America’s “Byzantine” worldwide tax regime, which taxes income earned anywhere in the world, to a territorial one that taxes only U.S. income, he said.

“For us, tax reform is broadening the base for lowering rates across the board,” he said. Individuals, including those reporting income from passthrough businesses such as S corporations and partnerships, pay marginal rates as high as about 44.6%, he said, taking into account a 39.6% top marginal rate, the net investment income tax of 3.8%, and the effect of the personal exemption phaseout and itemized deduction limitation that can apply to high-income taxpayers.

However, he said, “not to be too partisan, but we have a president who will not lower individual rates.”

Corporations pay tax at a top rate of 35%, which creates a “mismatch” with passthrough businesses, which are more numerous. Yet even the corporate rate is higher than the worldwide average among industrialized countries, Ryan noted.

“This is not good for America’s competitiveness,” he said.

The Tax Reform Act of 1986, P.L. 99-514, capped rates at 28%, which “tipped off a worldwide tax reform craze, where countries lowered their tax rates,” Ryan said. Now, the United States is “on the bad receiving end” of a global tax reform movement “because we have one of the worst tax codes in the industrialized world.”

The worldwide tax regime is “pushing capital overseas, triggering foreign takeovers of foreign companies buying U.S. companies, and encouraging inversions,” in which a multinational company based in the United States replaces its U.S. parent with a foreign parent, thereby potentially avoiding U.S. taxation on some or all of its profits.

In response to a question from a Council member about uncertainty her midsize CPA firm experienced “due to the new laws” in maintaining and affording health care coverage for its partners and employees, Ryan said he hoped health coverage will become more affordable. But, he said, President Barack Obama’s signature achievement, the Patient Protection and Affordable Care Act, P.L. 111-148, will “collapse under its own weight,” causing more uncertainty for some period before the marketplace offers greater certainty.