It’s a new year, so we’ve rolled out the latest version of our pass-through business principles. As in previous years, the letter hits on the three key elements necessary for any successful tax reform plan – it needs to be comprehensive, restore rate parity, and continue to reduce or eliminate the double tax on corporate income.
Also as in previous years, the list of signatories is long! With more than 100 national business groups signed on, the letter once again demonstrates the widespread support for tax reform that treats Main Street employers as equal partners.
What is new this year, however, is the name. In the past, we simply referred to ourselves as the pass-through coalition, which led to some confusion. So this year, we have a new name—“Parity for Main Street Employers.” As Politico reported last week:
Parity for Main Street Employers – new name, not a new coalition – is out with a new letter reminding top tax writers about the pass-through community’s wish list for tax reform: a comprehensive overhaul that would leave corporations and pass-throughs with the same rate, and would eliminate the double tax on corporate income through integration. “By embracing these broad concepts, Congress can move the taxation of business income in a direction that helps all employers, regardless of how they are organized, to invest and create jobs here in America,” the coalition wrote in a letter signed by more than 100 groups.
You can read the letter and visit our new website here:
And you can expect more from this group as the tax writers on the Hill and in the presidential campaigns continue to develop their policies. Pass-through businesses employ the majority of private sector workers, and any effort to reform the tax code needs to begin with this group of employers at the table. Taxing business income once, taxing it when it is earned, and taxing it at the same, reasonable rate is a recipe for reform that the entire business community can get behind.
Tough Times for the Innovation Box
It’s been six months since we saw the first concrete proposal for an innovation box in Congress, but with the Ways & Means Committee looking to release a new international draft in the next month or two, the chatter is growing. First, the President’s top economist, Jason Furman, laid out his concerns with the idea:
“Adopting an innovation box would move tax policy in the wrong direction, increasing complexity and cost without a commensurate boost to innovation,” Furman will say, later warning the U.S. against “joining a race to the bottom” that has made patent boxes popular in Europe.
Then the Joint Economic Committee released a new report on Patent Boxes that wasn’t explicitly critical, but it did include a long list of pros and cons followed by this less-than-effusive conclusion:
What is less clear is what the ideal design of these policies—especially a patent box—would look like for the United States. Looking to other countries for ideas is useful for benchmarking and considering competitive pressures. However, legislators have a wide range of policy and economic implications to consider before choosing whether and how to implement a patent box.
And finally, we have this from the head of tax policy at the OECD:
The introduction of tax measures such as so-called knowledge or patent boxes are not a good way to foster the creation of intellectual property (IP), a leading global tax expert has warned.
The head of the Paris-based OECD’s centre for tax policy, Pascal Saint-Amans, told a conference organised by the Irish Tax Institute in Dublin on Thursday that such measures did little to incentivise companies…
“What we have said is that if you decide to have a policy that may not be smart but that is your sovereignty then do it in a proper manner that will not take the tax base from your partners in an unfair manner,” Mr Saint-Amans told the conference.
S-CORP readers will remember that we proposed some improvements to the innovation box idea when the initial discussion draft was released last summer —namely, that the innovation box should apply to pass-through businesses as well as C corporations. We also passed on comments regarding the broader international reforms and how they would affect S corps.
Beyond that, we have been steering clear of the international tax reform discussion. However, given the clear opposition of the administration, the concerns of the OECD, and the ambivalence of the JEC, it will be interesting to see how far the innovation box idea moves in 2016.