It was billed as House Speaker Paul Ryan’s “first major speech on tax reform,” but the speech, before the National Association of Manufacturers summit, mostly repeated the same themes Ryan has discussed before, themes that are central to his “Better Way” program for national policy.
On the personal tax side, it highlighted the push toward simplification: reducing the number of personal tax brackets from seven to three, eliminating the alternative minimum tax rate (AMT) and estate tax and closing loopholes to reduce tax rates, while maintaining carve-outs such as deductions for mortgage interest and charitable donations.
On the corporate side, it stressed cutting the corporate tax rate, currently 35%; moving to a territorial system, where companies would be taxed only on domestic income, not foreign income, to avoid firms moving overseas to avoid taxes; and reducing so-called “pass-through taxes” for small businesses that file as individuals.
Notably, Ryan, R-Wis., made no mention of a border adjustment tax, which would tax companies for imported goods but not exported goods and which he has espoused previously. Companies such as Walmart have vehemently opposed a border adjustment tax.
Territorial taxation is another way to address the taxation of companies with foreign earnings, but rules would be needed so companies don’t shift overtax profits to lower tax countries, said John Buhl, spokesman for the Tax Foundation, a nonprofit right-leaning organization that focuses on tax policy.
He added that changes in taxes on pass-through businesses should also include rules to prevent what happened in Kansas, where taxes on such entities were cut to zero, which led to individuals and corporations restructuring themselves as pass-through tax entities and a major drop in state revenues.
Buhl said Ryan’s timeline to achieve major tax reform this year is an “aggressive time line” for a very “full calendar.”
Rep. John Yarmuth, D-Ky., said in a statement that Ryan “failed to be straight with the American people about what the Republican tax plans would actually do.” The plan, said Yarmuth, would provide individual in the top one-tenth of one percent of income earners a tax cut of $1.4 million, compared with $60 for a middle-income household, and add $3 trillion to the U.S. debt burden.
Ryan offered few details about the tax changes and emphasized instead the need to make them permanent, because businesses “need to have confidence that we will not pull the rug out from under them” and to get it “done in 2017… We cannot let this once-in-a-generation moment slip by…. Transformational tax reform can be done, and we are moving forward. Full speed ahead.”
He and his NAM host asked members of the audience to contact their congressional members to support the plan.
— Check out Treasury Pushes Congress to Rein In Dodd-Frank, Consolidate Regulators on ThinkAdvisor.