Senate Finance Committee Asks Members to Communicate Tax Reform Priorities
PattonBoggs.com Tax Policy Client Alert 1
JULY 1, 2013
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SENATE FINANCE COMMITTEE
ASKS MEMBERS TO COMMUNICATE
TAX REFORM PRIORITIES
On June 27, Senate Finance Committee Chairman Max Baucus (D-MT) and
Ranking Member Orrin Hatch (R-UT) released a Dear Colleague letter laying out
a beginning framework for comprehensive business and individual tax reform.
The Dear Colleague indicates that the Committee will begin deliberations on tax
reform with a “blank slate” approach (i.e., assuming all tax expenditures will be
eliminated) and requests Senators provide to the Committee by July 26 detailed
proposals for those tax expenditures and other provisions that should be
maintained, repealed or added to the Code.
HIGH BAR FOR RETENTION OF TAX PREFERENCES
While the Committee acknowledges that a “blank slate” is a starting point, rather
than an end point, this approach demonstrates that the Committee leadership is
setting a high bar for retaining tax preferences in the Code.
In the letter, Chairman Baucus and Ranking Member Hatch set forth their
rationale for allowing the inclusion of an expenditure in the Code. Specifically, the
letter states, in part:
To make sure that we clear out all the unproductive provisions and simplify in tax reform, we
plan to operate from an assumption that all special provisions are out unless there is clear
evidence that they: (1) help grow the economy, (2) make the tax code fairer, or (3) effectively
promote other important policy objectives.
Today, we write to ask you to formally submit legislative language or detailed proposals for what
tax expenditures meet these tests and should be included in a reformed tax code, as well as other
provisions that should be added, repealed or reformed as part of tax reform. In order to give
your proposals full consideration as we work to craft a bill, we request these submissions by July
26, 2013. We will give special attention to proposals that are bipartisan.
PattonBoggs.com Tax Policy Client Alert 2
COMMITMENT TO FUNDAMENTAL TAX REFORM
This is the latest is a series of steps that both Chairman Baucus and House Ways and Means Committee Chairman
Dave Camp (R-MI) have taken in preparation for moving large-scale tax reform. Chairman Baucus has announced
that he will not seek reelection in 2014, and Chairman Camp will be term-limited out of his Chairmanship in 2014;
their public and private statements make it clear that both are committed to enacting comprehensive tax reform
legislation within that timeframe.
Earlier this year, both the Senate Finance and House Ways and Means Committees forged ahead on options for tax
reform, convening closed-door sessions that produced options papers on the Senate side and structuring working
groups for public input on the House side. Over the next few months, we expect both Committees to continue to
seek input from their Committee membership on a legislative product.
We further expect both Chairmen, and a number of senior Congressional leaders, to continue to look for ways to
accelerate the tax reform process. For example, Chairman Camp and many House Republicans have indicated that
legislation to raise the nation’s debt limit, which is necessary later this year, should include binding instructions
compelling a tax reform process to occur in a time certain, concluding in 2014.
Given current dynamics, it is imperative to plan as though tax reform may occur in the near term, even though, at
this stage, the timing of comprehensive reform remains uncertain. If a Senator or Senators do not request the
retention of a provision on the tax-expenditure list, there is an increased risk that proponents of the provision will
face a more difficult battle in the future.
Similarly, if Senators do not demonstrate support for changes that have been discussed and that certain taxpayers
would like to see enacted, such as specific changes in the taxation of the foreign investment of domestic
corporations, the chances of achieving those changes may be diminished.
Senators will have a choice of whether to submit one letter or multiple letters. While Senator submissions will not be
made public by the Committee, individual Senators may choose to release copies of their requests.
The Joint Committee on Taxation’s most recent publication on tax expenditures can be found here. (The
publication lists tax expenditures by category on Pages 30 through 40.) This is not an exclusive list. As the
publication notes, the list does not include tax provisions with a low expenditure cost in the estimation window and
some provisions that are difficult to estimate. Neither does it include items that are not formally classified by the
Joint Committee on Taxation as “expenditures,” including certain ordinary and necessary business expenses such as
PattonBoggs.com Tax Policy Client Alert 3
The following list includes some of the most significant tax expenditures, many of which will be scrutinized in
fundamental reform. (Interested parties should consult the Joint Committee on Taxation publication for a full list.)
Preferential rates on long-term capital gains and qualifying dividend income
Deferral of active income of controlled foreign corporations (CFCs)
Depreciation of equipment in excess of alternative depreciation system
Research and development credit/expensing of research and experimental expenditures
Deduction for income attributable to domestic production activities
Deductibility of home-mortgage and student-loan interest
Exclusion of interest on public purpose State and local government debts
Credit for low-income housing
Inventory methods and valuation (LIFO accounting)
Deferral of gain on like-kind exchanges
Exclusion of investment income on life insurance and annuity contracts
Deductions for charitable contributions
Exclusion of interest on State and local government qualified private activity bonds for student loans
Exclusion of tax on earning of qualified tuition programs
Exclusion of benefits provided under cafeteria plans
Exclusion of employer contributions for health care, health insurance premiums, and long-term care insurance
Deduction for health insurance premiums and long-term care insurance premiums by self-employed
Net exclusion of pension contributions and earnings
Individual retirement arrangements
Patton Boggs believes it is important to voice support for the tax expenditures affecting your company.