As we have previously reported, Chairman Charlie Rangel has a deep interest in passing a permanent “fix” to the Alternative Minimum Tax. Meanwhile, Treasury Secretary Paulson has kicked-off efforts to cut the corporate tax rate in order to make our corporations more competitive on the world stage.
Now the word on the Hill is that these two unrelated agendas may collide in the next week or two at a Ways and Means Committee hearing, and possibly at the end of the year as a massive tax reform package.
As BNA reported last week (subscription required), Chairman Rangel has indicated he might be open to cutting the corporate tax rate as part of a broader tax simplification bill to be considered later this year. As BNA noted:
“ A committee hearing on corporate taxes could be scheduled later this fall. The Treasury Department has been examining the corporate tax structure as part of an effort to improve competitiveness in the global economy. Rangel said he has been considering potential changes since administration officials said a lower, more competitive rate would be advantageous.
Any changes in the corporate tax structure would come as part of a bill that would reform or possibly eliminate the alternative minimum tax. Rangel has said that measure also would expand the child tax deduction and the earned income tax credit while possibly including provisions to more than double the tax rate paid by private investment managers.”
As a group, the S Corporation Association would support a cut in the corporate tax rate. All things being equal, lower marginal tax rates are better for business, and C corporations are our suppliers, customers, partners, etc. The challenge for S corporations is that, in a pay-as-you-go environment, every dollar in tax relief to corporate America will have to be offset by a dollar tax increase on somebody else.
S corporations are already being targeted to offset part of the cost of AMT reform, either through a 4 percent surtax that would apply to all income above a certain level, including S corporation distributions, or a general increase in the rates of the higher tax brackets. Under an AMT/Corporate Rate package, the additional cost of cutting corporate tax rates would also have to be offset.
Our friends at Treasury are well aware of the important role flow-through businesses play in job creation and economic growth. They have addressed our S-Corp board meetings several times in the last couple years and we had a chance to raise this issue directly with the Secretary.
That said, when the Chairman of the Ways and Means Committee and Secretary of Treasury get together to trade notes, who knows what sort of a bargain may be struck? They don’t call it sausage making for nothing.
Congress’ Must Do List
On a related note, one of the more popular pastimes here in the nation’s capital is guessing when Congress will recess for the winter. Past adjournment dates have ranged from early October (in election years) to a couple days before Christmas.
This year looks more like the latter – it’s not an election year and thereb’s a long list of must-do items, including:
- Appropriations Bills: Not one (of twelve) has been sent to the President yet, and the fiscal year ends this week.
- AMT Patch: If Congress fails to extend the patch, more than 20 million new taxpayers will be added to the AMT and see their taxes go up April 15, 2008.
- Physician Payments: Medicare payments to doctors are set to be cut next year, but there’s lots of support to block the payment cuts from taking place.
- S-CHIP: The children’s health insurance program expires at the end of the week and the President has said he will veto the current version of the bill when it is sent to him.
Throw in Iraq funding, tax extenders, an energy bill, a possible corporate rate cut and other priorities, and there’s plenty to keep Congress busy right up until Christmas this year. We’re not in the business of making projections, but one senior Senate staffer told us the other day that he booked his Christmas flight home for Saturday, December 22nd.