NUMBER OF THE WEEK: 0
The number of seats available at the start of this morning’s Tax Policy Center panel discussion about corporate tax inversions. Treasury Secretary Jack Lew spoke briefly before a group of panelists parsed out the causes of and solutions to the growing number of U.S. multinational corporations that are reincorporating abroad. The packed room — early on a Monday morning, no less — reflects the growing public and political interest in the tax strategy.
House and Senate. The House and Senate are returning to Capitol Hill this week after a five-week recess with a few “must-do” items on the agenda. However, both chambers and both parties share a common desire to keep the September session short so they can get back home to campaign for the Nov. 4 midterm elections.
Tax policy will be among the top issues at hand. Several lawmakers continued to press for action aimed at curbing corporate inversions over the break, and Sen. Chuck Schumer (D-NY) may introduce an anti-inversion bill focused on “earnings stripping” as early as this week.
The House plans to hold floor votes this month on several tax “extender” bills as part of an omnibus jobs package. Tax bills in the package include permanent extensions of the R&D tax credit, the Section 179 expensing measure, the S corporation conversion bill and bonus depreciation.
To avoid a repetition of last year’s politically costly government shutdown, lawmakers are motivated to negotiate a short-term continuing resolution (CR) to fund the government after the current fiscal year ends Sept. 30. The House is expected to introduce its version of the stopgap funding bill tomorrow, and many expect it would postpone budget and spending fights at least until December. A short-term extension of the moratorium on internet access fees may also hitch a ride on the CR, leaving bigger negotiations for lawmakers to confront during the lame-duck session. For more on what to expect on the Hill, check out “Looking Ahead” below.
Lew Says Anti-Inversion Measures Coming in “Very Near Future.” Treasury Secretary Jack Lew told a standing-room-only crowd on Monday, Sept. 8, that the administration is readying options for curbing the growing spate of corporate inversions. Lew’s brief comments preceded a panel discussion hosted by the nonpartisan Tax Policy Center that focused on inversions, the reasons for their recent growth and potential options the administration and Congress could employ to deter them. As expected, Lew did not elaborate on what options the administration might be considering, but he did reiterate that any administrative response would be only part of the equation. “Any action we take will have a strong legal and policy basis, but will not be a substitute for meaningful legislation — it can only address part of the economics. Only a change in the law can shut the door, and only tax reform can solve the problems in our tax code that leads to inversions,” Lew said, keeping the pressure on congressional lawmakers to act.
Lew also expressed support for retroactive application of any new anti-inversion laws — a deal-breaker for key Republicans — in order to “prevent a rush of corporate inversions to get in under the wire before a change in the law.”
Panelists Offer Views, Options For Inversions. Following Lew’s comments, John Samuels, vice president and senior counsel for tax policy at General Electric Co., offered some possible explanations for the rise in inversions. First, he said most other developed countries have reformed their tax systems to be more business friendly — embracing lower corporate rates and a territorial regime, which does not tax a domestic company’s foreign-earned profits. In addition to favorable tax treatment, Samuels said many countries offer other attractive incentives for U.S. multinationals to relocate, like an educated workforce, stable government and rule of law.
In some cases, Samuels said, U.S. companies may have lost hope in tax reform and they’ve “resorted to self-help.” In some cases, it may be that companies have had a glimpse of what tax reform might look like and decided they don’t like it, Samuels said, referring to recent proposals. “Might as well get out of Dodge now before the new sheriff comes to town,” Samuels added.
Meanwhile, fellow panelist and former Treasury official Stephen Shay described how the Treasury Department could discourage inversions within the scope of its authority. One approach within the Treasury Department’s authority under Internal Revenue Code Section 385, Shay argued, is to reclassify debt as equity, thus turning a once-deductible interest payment into a nondeductible dividend. Another panelist, Tax Policy Center senior fellow Steven Rosenthal, supported this approach, which also mirrors a recent legislative proposal floated by Sen. Chuck Schumer (D-NY).
COURTS & LEISURE
Latest Development: Lawsuit Over Tax Preparer Voluntary Certification Program. The IRS last week filed a motion to dismiss the American Institute of Certified Public Accountants’ lawsuit against the agency’s new voluntary certification of tax return preparers program, saying the AICPA “lacks standing to maintain the instant suit.” In its call to dismiss the lawsuit, the IRS argues that the program won’t harm AICPA and its members because it targets uncredentialed tax preparers, not CPAs. AICPA plans to oppose the motion.
Wednesday, September 10: House Ways and Means Chairman Dave Camp (R-MI) and Chairman of the President’s Council of Economic Advisers Jason Furman will discuss tax reform at the Business Roundtable.
Senate Finance Committee to Hold Hearing on Retirement Tax Provisions. Chairman Ron Wyden (D-OR) announced last week that the Senate Finance Committee will begin “later this month” taking “a close look at pension and retirement rules in the tax code to make improvements wherever they’re needed.” The exact date of the hearing is not yet known, but it may take place as early as next week. The announcement came in conjunction with the 40th anniversary of the passage of the Employee Retirement Income Security Act (ERISA). The full statement is available here .