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Sept. 22 — The corporate integration draft bill from Senate Finance Committee Chairman Orrin G. Hatch (R-Utah) is almost ready, but it may not be released before the Nov. 8 elections because of political hurdles and continued Joint Committee on Taxation work on a final score for the proposal.
The shareholder-level-only tax plan has worried the retirement savings community, exempt organizations and insurance companies that fear Hatch’s plans to remove the double layer of corporate taxation could increase their taxes.
Several lobbyists who spoke to Bloomberg BNA on the condition of anonymity said the plan deals with complicated issues that could be demonized by opponents, making the idea of pre-election release unpalatable to Republican leadership in the Senate.
But the decision to release the plan remains up to Hatch, said an aide to Senate Majority Leader Mitch McConnell (R-Ky.).
Hatch’s plan includes a deduction for dividends that corporations pay and would treat these dividends the same as interest payments (51 DTR G-6, 3/16/16). A plan that includes dividend deductions with refundable credits could be made revenue neutral by disallowing interest deductions, eliminating tax preferences and maybe using only partial deductions, according to a Congressional Research Service report.
Hatch has talked up the plan since the beginning of the year, saying it would tackle corporate inversions and complement a broader tax overhaul proposed by House Republicans.
The corporate integration proposal is modular, said a Republican Senate aide familiar with it, meaning that it would likely fit in with a broader tax overhaul package or could stand on its own.
The plan's release has taken longer than expected, as Hatch’s staff continues to work with the JCT on a final dynamic revenue score. A committee spokesperson said staff is still waiting for final data from the JCT before timing and details can be announced. Hatch seemed resigned to the idea of releasing the draft after the elections, telling reporters Sept. 22 that “there’s not much we can do at the end of this year anyway. So it will become very important next year.”
Senate Republican Conference Chairman John Thune (R-S.D.) said it would be difficult to tackle a broad issue like corporate integration in the current political environment.
“Even with the approach that’s been taken, there are always people in the stakeholder community who are impacted differently, and I just think that right now, the timing’s not good to go into that, though the committee and Sen. Hatch’s staff have done a lot of work on it,” said Thune, a Finance Committee member.
The Senate is expected to recess by Sept. 30 and won’t return until the week after the Nov. 8 elections—and may leave earlier than scheduled. “I don’t see anything in the clock that lets them” release the plan soon, a lobbyist said.
Tax-exempt groups, retirement savers and foreign shareholders hold about three-fourths of U.S. corporate stock, an issue discussed during one of the hearings on corporate integration in May (96 DTR G-7, 5/18/16).
Fifty years ago, 84 percent of corporate stock was held in taxable accounts, according to research presented at the hearing by Steven Rosenthal of the Urban-Brookings Tax Policy Center.
Nonprofit sector concerns over the fate of their tax exemptions have continued to linger, a former Republican tax staffer said, adding that the May hearings were seen as politically difficult by spotlighting displeasure from groups such as pension funds.
The Senate aide familiar with the corporate integration plan said many of the concerns brought up at those hearings are addressed in the draft, through various options, but they won't come out until the plan is released, meaning the critics will continue talking.
But Hatch definitely wants to release the plan so that it becomes part of the tax overhaul conversation, particularly with an eye toward next year with a new president and a new Congress, the aide said.
A second tax lobbyist said a lot of political grief is possible on corporate integration unless it is part of a comprehensive tax overhaul that includes tax breaks for individuals.
Hatch’s staff is continuing efforts to get Democratic support for the draft, but Sen. Benjamin L. Cardin (D-Md.), who sits on the Senate Finance Committee, said it would be a challenge to pursue corporate integration in isolation.
“I don’t know how he pays for it and how he puts it into the current system without causing further problems,” Cardin said.
The first lobbyist said that Hatch’s staff has enough numbers from the JCT to get a sense of where the plan is headed.
The staff has “always thought it will be revenue neutral or a revenue raiser,” he said.
James Gould, a lobbyist with Ogilvy Government Relations, said corporate integration has the potential to be the linchpin of a tax overhaul plan in 2017.
“It could let the GOP effectively achieve its goal of slashing the corporate tax rate—but without either busting the budget, imposing a big new tax or repeating Dave Camp's ill-fated effort to kill popular tax expenditures,” he said, referring to a tax overhaul proposal by former Ways and Means Committee Chairman Dave Camp (R-Mich.) in 2014.
"Corporate integration won't happen by itself, but only as part of a tax deal that gives both parties a win,” Gould said.
With assistance from Laura Davison in Washington.
To contact the editor responsible for this story: Meg Shreve at email@example.com
Text of the CRS report, “Corporate Integration and Tax Reform,” is in TaxCore.
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
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