Divided government, competing legislative goals and budget constraints have made it difficult for Congress in recent years to respond to calls for a more competitive U.S. tax system. These difficulties increased this year as the political parties position themselves for the upcoming November 4 midterm Congressional elections.
While enactment of comprehen sive tax reform is unlikely in 2014, business taxpayers should consider how recent reform proposals in the House and Senate may shape future efforts to overhaul U.S. tax laws. As was true under the 1986 Tax Reform Act, sweeping changes to our domestic and international tax rules could have markedly different effects on various sectors of the economy and particular businesses within a sector--effects that financial executives will want to monitor and measure.
The release of a comprehensive tax reform discussion draft in late February by House Ways and Means Committee Chairman Dave Camp (R-MI) was a significant development that could influence future Congressional action on tax reform. In late 2013, former Senate Finance Committee Chairman Max Baucus (D-MT) also offered a series of tax reform discussion drafts, before he became U.S. ambassador to China earlier this year. Senator Ron Wyden (D-OR), the new Finance Committee Chairman, has a long-standing interest in tax reform, having introduced bipartisan tax reform bills with Republican senators in previous sessions of Congress.
While tax reform efforts will continue beyond 2014, the specific refoini proposals discussed below warrant close attention because of their potential to significantly affect how businesses are taxed.
In advance of the November elections, the House and Senate are facing a few "must-pass" deadlines for legislative action. By the end of September, Congress will need to enact appropriations legislation to fund government programs for Fiscal Year (FY) 2015, which begins on October 1. A two-year highway and transit authorization is also scheduled to expire on September 30, 2014, and the Obama Administration projects the highway trust fund may run out of money before then. While the House and Senate tax committees will be called on to provide funding options, it will be difficult for Congress to agree on any legislation that includes significant tax increases for federal highway programs.
Another deadline to note is the November 1 expiration of the current federal moratorium on new state and local taxes on Internet access. Business taxpayers also could be affected by other state and local tax issues before Congress this year. For example, legislators in the House are considering a Senate-passed bill (S. 743, the Marketplace Fairness Act) that would provide standards for collecting taxes on "remote" sales to customers within a state. Another state and local tax issue of interest to many employers is legislation introduced in the House and Senate (H.R. 1129; S. 1645) to simplify state income tax withholding rules for employees working in more than one state.
Both the House and Senate have begun the process of considering legislation to renew certain tax provisions that expired at the end of 2013, as discussed below. At this writing it appears Congress will attempt to pass an extenders package during the summer, but if that effort fails, final Congressional action on expired tax provisions will be delayed until after the November 4, 2014 election, when Congress is expected to return for a "lame-duck" session. Finance Chairman Wyden has called for action to extend expired business and individual tax provisions a "bridge" to tax reform in 2015.
The Senate and House tax-writing committees each have taken action to extend certain expired tax provisions. More than 50 temporary business and individual tax provisions expired at the end of 2013. Additional provisions are set to expire at the end of 2014.
Senate Finance Committee
The Senate Finance Committee on April 3 approved the Expiring Provisions Improvement Reform and Efficiency (EXPIRE) Act, which retroactively extends for two years--from January 1, 2014 through December 31, 2015--nearly all of the...