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Feb. 12 — Insistence on revenue neutrality shouldn't limit efforts to remake the U.S. tax code, especially given the benefits of dynamic scoring, House Ways and Means Committee Chairman Kevin Brady (R-Texas) said.
Collecting less revenue in the shorter term under conventional budget scoring is less important than crafting new tax laws that might eventually expand the U.S. economy, he said at an event hosted by the Tax Council Policy Institute on Feb. 12.
His remarks expanded on past comments he has made that policy, not cost projections, should drive the tax change debate.
Brady, who considers current conversations on revising U.S. tax laws on foreign profits a prelude to reshaping the entire tax landscape next year or beyond, said he would consider a wide range of proposals.
“Through that lens, I am often asked about the constraints of revenue neutrality, and my answer is this,” Brady said.
“Real-world dynamic budget scoring that recognizes the growth aspects of tax reform is the responsible path, and I won't leave economic growth on the table because of disagreements over a dime or two. What we're seeking are jobs and opportunity.”
He called such economic analysis rational for recognizing that the tax code changes behavior as well as the size of the economy, wages and productivity. A revenue projection that incorporates those factors, plus the lower budget baseline that has resulted from cementing a number of long-temporary tax provisions in December, will open up more options for redoing tax laws than in the past, including the tax bill introduced in 2014 by former Ways and Means Chairman Dave Camp (R-Mich.).
“I think that that's going to give us the space that we need, along with the permanency that we just enacted,” to allow us “to really keep those pro-growth initiatives on the table,” Brady said.
Criticism Creeps Up
Skeptics of dynamic scoring have their doubts.
Making such beneficial claims would allow Brady and other supporters to avoid being labeled as planning to raise taxes. They have collectively pledged not to do so.
The gray area between defining how to raise revenues and raising taxes offers that kind of shelter, said William Gale, co-director of the Tax Policy Center.
“They've all signed the no-new-taxes pledge, but looking at things objectively, they know they need to get some revenues from somewhere,” he told Bloomberg BNA Feb. 12.
If they can claim revenue gains as a result of projected economic growth, they won't run afoul of the pledge, Gale said.
Criticism from Democrats on Capitol Hill was more pointed.
“Did he mention dynamic spending?” Rep. Richard E. Neal (D-Mass.) said of Hatch's remarks.
Such considerations should factor into the debate over what to do with revenues that would result from changing taxes on U.S. companies' foreign income, he told reporters. Democrats in Congress and President Barack Obama favor more spending on domestic infrastructure with such revenue, for example, so projections that show jobs and other growth measures scaling up through increased spending should also carry weight, said Neal, a Ways and Means member.
He also said he would support dynamically scoring the impact of lower taxes on intellectual property through a so-called innovation box, or patent box, an idea he has supported along with Rep. Charles Boustany Jr. (R-La.), who chairs the Ways and Means Tax Policy Subcommittee. Boustany is now reformulating an initial draft of the proposal he and Neal jointly released last summer.
The innovation box proposal is a central part of Brady's plans to address international tax changes this year, as a stepping stone to bigger changes ahead.
“We're going to move forward immediately to draft international tax reform legislation,” he said. “Our work on international tax reform will be an integral part of our work on comprehensive tax reform. Our work here will be a down payment that clears the way, in my view, to focus on the work of lowering rates and simplifying the code for all businesses and individuals so that we are ready to enact comprehensive tax reform in 2017.”
Brady's goal is to transition to more of a territorial tax system on foreign earnings, with lower overall corporate tax rates. He has been less specific about proposals to broaden the tax base as part of this effort, but he is restarting talks with Sen. Charles E. Schumer (D-N.Y.), House Speaker Paul D. Ryan (R-Wis.) told reporters.
Getting all that done this year seems improbable, Gale said, given differing factions within the broader business community that have different needs. The varying tensions between domestic and multinational corporations, as well as businesses organized as passthroughs, don't appear ready for resolution, he said.
But Brady has insisted he would plow ahead, alongside a plan in development by Senate Finance Committee Chairman Orrin G. Hatch (R-Utah), who is crafting a proposal to end double taxation on corporations through a process called corporate integration.
Brady called the two pathways compatible and complementary.
“I see them as parallel tracks, going in the same direction,” he said.
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