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And so it begins…

The great tax reform debate of 2017 got underway last week with a House Ways and Means Committee hearing entitled, “How Tax Reform Will Grow Our Economy and Create Jobs.” This was the first of what we expect to be a series of tax reform-related hearings expected to be held by the panel this year. And the discussions will not likely be restricted to the House of Representatives, as it is almost certain that the Senate Finance Committee will also conduct hearings on tax reform this year.

On the bright side, it appeared that Committee Members found some common ground on the general need for tax reform and the importance of improving the economy. However, while Republicans focused largely on the economic benefits of tax rate cuts, full expensing, and other policies included in the House GOP Blueprint, Democrats expressed concerns that the Republican tax reform plans could add to the debt and would disproportionately benefit the wealthy while shortchanging the middle class. It will take a serious outbreak of leadership on both sides of the aisle to overcome the partisan warfare that seems to produce nothing but political stalemates.

Capitol Counsel, the Alliance’s lobbying firm, was on hand for the hearing and provided this report:

The hearing featured a single panel of five witnesses. John J. Stephens (Senior Executive Vice President and Chief Financial Officer, AT&T Inc.) testified that “[i]f we’re serious about robust growth, then we must get serious about jump-starting private sector investment.” He stated that “the best way to do that is to fix our broken, last-century corporate tax code,” arguing that “[a]chieving competitive corporate tax rates is likely the most effective catalyst available to our public policy makers to increase capital investment and create jobs.” He also expressed support for full expensing and argued that “[i]f the Committee plans to eliminate interest deductibility, I would encourage you to utilize reasonable transition rules that do not penalize past choices companies made under a vastly different tax system.”

Zachary J. Mottl (Chief Alignment Officer, Atlas Tool Works, Inc.) testified that tax reform “is the best and fastest way to grow the US economy and create more jobs in America,” particularly among small manufacturers. He argued that “our economy and our citizens need and deserve permanent, comprehensive tax reform that also improves America’s trade competitiveness,” expressing support for the border adjustment regime included as part of the House GOP Blueprint. He also emphasized the “importance of simplifying the tax code and reducing the overall tax rate.”

David N. Farr (Chairman and Chief Executive Officer, Emerson Electric Co.) testified that “[c]omprehensive, permanent business tax reform that reduces the corporate tax rate to 15 percent, provides lower rates for pass-through entities, moves to a modern territorial international tax system, maintains a strong R&D incentive, and includes a robust capital cost-recovery system will go a long way to attract this investment and economic growth and our country’s competitiveness.”

Douglas L. Peterson (President and Chief Executive Officer, S&P Global) testified that tax reform should include policies “that reflect the growth and development of our dynamic economy in order to keep up with the quickly evolving competitive global market.” He argued that “[t]hree primary elements are critical to help ensure that U.S. companies can better compete in the global marketplace,” namely, “[a] lower corporate income tax rate,” “a [c]ompetitive [i]nternational [t]ax [s]ystem,” and “a [m]odernized [t]ax [c]ode for America’s [e]volved [e]conomy.”

Steven Rattner (Chairman, Willett Advisors LLC), the Democrats’ invited witness, testified that tax reform “should meet several important tests: 1) It should be deficit neutral, given projections for rising fiscal gaps[;] 2) It should be fair and certainly not diminish the progressivity of our system[;] 3) It should be growth and investment enhancing[; and] 4) It should improve our international competitive position.” He argued that “[o]n that basis, the proposal by President Trump falls short in several important respects.”

During the question-and-answer portion of the hearing, the discussion explored a variety of discrete issues and broader themes. In general, Republicans spoke favorably about tax rate reductions, full expensing, and a shift to a territorial international tax system, drawing out comments supportive of those policies from most of the witnesses. Republican Members also focused on the economic benefits of doing tax reform on a permanent, rather than temporary basis, arguing that permanence would promote certainty among employers, leading to greater economic growth, additional business investment, more jobs, and higher wages. Democrats focused largely on the need to ensure that tax reform would benefit the middle class and working Americans, rather than just the wealthy, and warned against tax plans that would add to the debt. Many Democrats also expressed support for increased investments in infrastructure, whether as part of tax reform or through other means.

Chairman Brady’s opening statement is available here.

Ranking Member Neal’s opening statement is available here.

Witness testimony is available here.

The hearing pamphlet prepared by the staff of the Joint Committee on Taxation is available here

It goes without saying that the Alliance and its members have some serious skin in the tax reform debate game. Fraternals’ century-old tax exemption allows us to fulfill our unique financial and community service missions. The Alliance’s advocacy team has been working hard so far this year to make sure that members of the House Ways and Means Committee and Senate Finance Committee understand the incredible – and irreplaceable – contributions fraternals make to securing their members financial futures and improving the communities in which those members live and work.

We’ll be calling on you to help our professional advocates deliver that message later this year when a formal tax measure is introduced. In the meantime, we’ll do our best to keep you aware of what’s going on in Washington, and to keep you prepared to take action when needed.


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