Since 1986, there has been no real attempt by Congress to overhaul the American tax system. Recent changes in the economy and projected slower economic growth in the near term, however, have acted as a catalyst for fundamental tax reform for both individuals and corporations. Auto dealers concerned with preserving elements of the current tax code and securing reform of other tax policies should know that all aspects of the Internal Revenue Code are effectively on the table for discussion.
The House Ways and Means Committee, working under a framework passed by the House last summer, has launched a bipartisan process with the creation of 11 working groups tasked with examining current tax benefits, recommending simplifications and consolidations of benefits within their specific issue areas. The working groups include:
- Charitable/Exempt Organizations
- Debt, Equity and Capital
- Education and Family Benefits
- Financial Services
- Income and Tax Distribution
- Real Estate
- Small Business/Passthroughs
After months of roundtables and meetings with stakeholders, the working groups’ findings have been compiled into a report issued by the Joint Committee on Taxation (JCT) on May 6th. The report summarizes current law as well as the proposals and information gathered by the working groups. The full report can be found here.
Additionally, the Ways and Means Committee has released three major discussion drafts so far on tax reform relating to Small Business, Financial products and moving the US tax system to a territorial system. The Committee has held over 20 hearings in the past two years in addition to soliciting stakeholders and interested parties to weigh in with the working groups. Committee members have begun the process of meeting on the recommendations put forth in the JCT report while the Chairman has announced hearings on the discussion drafts with the ultimate goal being to move revenue neutral tax legislation before the end of 2013. The most recent discussion draft hearing is scheduled for May 15th is here.
Meanwhile, the Senate Finance Committee under Chairman Max Baucus (D-MT) has produced four tax reform option papers incorporating input from witnesses who testified at hearings held over the last two years, Finance Committee members, and staff. Chairman Baucus has been vocal in his unwavering support for fundamental tax reform, having held numerous press conferences with Chairman Dave Camp; however no formal structure for moving legislation has been agreed upon by Senate Majority Leader Harry Reid (D-NV).
It remains to be seen if the timing is right for true tax reform to go the distance. The 1986 Act was the culmination of years of starts and stops which ultimately resulted in legislation that took months of protracted closed door drafting sessions by a bipartisan group of lawmakers and a fully supportive Administration. Factors complicating the current process include the recently announced retirement of Chairman Max Baucus of the Finance Committee and the uncertainty of who will replace him at the end of 2014 as well as the limitation imposed by House Republican rules on Ways and Means Committee Chairman Camp, who must give up his gavel at the end of 2014 as well. One way to look at it is that these two chairmen will focus like a laser on tax reform and push their colleagues hard to complete the task during the remaining 18 months of their tenure. Another way to view it is that something this complex can’t be rushed and their status instead has substantially narrowed the timeframe for achieving any substantial tax reform this year.