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Thursday, March 17, 2011

Tax reform - should all businesses be taxed the same?

Today's Wall Street Journal includes an article, "Tax Plan Aims for 25% Cap" by John D. McKinnon. It notes that House Ways and Means Committee Chair Camp wants to drop both the corporate and individual tax rates to 25% and eliminate or reduce various deductions including "popular" ones.

This is an interesting goal and I wonder if it stems from hearings held so far by the tax writing committees as well as the Senate Budget Committee where discussions have included the issues that arise when the corporate rate is lower than the individual rate. There was also testimony (particularly at the Senate Finance Committee hearing of 3/8/11) that perhaps there is inequity in allowing businesses, particularly large ones, to operate outside of the C corporation form. Even Senator Baucus apparently has questioned whether all pass-throughs should be taxed outside of the corporate tax structure (see The Hill blog post of 3/8/11 - "Baucus skeptical of businesses taxed as individuals").

This has led to introduction of a resolution by Senator Snowe that businesses should be allowed to chose their entity form rather than being taxed as C corporations (Senator Snowe 3/3/11 press release + resolution).

Hearings will continue (the 1/20/11 tax reform hearing in Ways and Means was described as the first in a series). As reported in today's Wall Street Journal - "Rep. Richard Neal of Massachusetts, a top Ways and Means Democrat, said Mr. Camp's proposal faces difficult going. "As long as tax reform is offered in the abstract, everyone rallies to the cause," Mr. Neal said. "When it becomes specific, people start to fall off.""

That is a good point! It seems that hearings are moving beyond "abstract" in terms of rates and that not all entities operating outside of the C corp form are "small." These are difficult issues and perhaps a warm-up to the difficult issues of cutting back on the $1 trillion of tax expenditures. It should be interesting!

For a link to hearings and related documents on tax reform - click here.

What do you think about whether all businesses should be taxed at the same rate structure and with double taxation? Should businesses be taxed differently based on legal form or size?

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