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An Opening from the White House on Tax Reform?

It’s been interesting to follow the back and forth today on corporate tax reform between the Business Roundtable (BRT) and the White House.  It’s important to understand what was -- and wasn’t -- said.

First, the BRT’s President, Governor John Engler, today put forward his organization’s 2013 policy priorities -- a plan titled, “Act for America’s Future.”  In response to a question about what he has heard from the White House on tax reform, especially its position on proposals to move our current outdated system of double-taxation of US company earnings to a competitive, market-based (or territorial) approach -- an approach we and the BRT both support --  the Governor said:

“I would say the president impressed people on that in December, because he reaffirmed his support for corporate tax reform, and he was acknowledging the importance of dealing with the territorial system, which I think had been a little bit of a question as to where exactly they were. There were no specifics, but a favorable impression was left by the President on the comprehensive tax reform topic.”

When asked to comment, the White House later sent reporters a carefully worded response

“The President is eager to pursue corporate tax reform that lowers the rate, broadens the base, and incentivizes investment here at home, but does not believe that a pure territorial system is the best way to achieve this goal. The President looks forward to working with the business community, Democrats and Republicans to reform our corporate tax structure in a way that best helps American businesses compete globally.”

Let me emphasize one line:  The President “…does not believe that a pure territorial system is the best way” to proceed.  This is an important distinction. 

We are not aware of any serious tax reform blueprints proposed in the current or prior Congress that call for a pure territorial system.  The discussion draft offered in 2011 by Ways and Means Chairman Dave Camp, R-Mich., does not propose to create a pure territorial system.  Indeed, no one who is closely involved in tax reform is suggesting that the Congress would approve and the President would sign legislation that creates a “pure territorial system.”  Such a plan simply won’t become law. 

Fundamentally, the proposals under discussion would create a market-based structure that would allow the U.S. to be more competitive in attracting and growing businesses, investments, and jobs.  This basic approach is supported by every independent advisory board and working group that has examined options on tax reform, including the President’s Economic Recovery Advisory Board, his Council on Jobs and Competitiveness, his Export Council, and the Simpson-Bowles Commission on Fiscal Responsibility and Reform

The comments by the White House today suggest opposition to a pure territorial system -- a concept not being advocated seriously by anyone -- but certainly allow room for negotiation and compromise.  Further, the are in line with a conversation reported in Bob Woodward’s book, “The Price of Politics,” between Treasury Secretary Tim Geithner, House Speaker John Boehner, R-Ohio, and others during the “Grand Bargain” discussions in the summer of 2011.  According to Mr. Woodward, the Secretary said that the Administration wouldn’t support a pure territorial system in which all offshore profits are exempt from U.S. taxation.  But he said they could perhaps find consensus on a plan that would achieve the same goal – reduce the corporate tax rate and make U.S. businesses more competitive with a market-based plan.

“I’m not sure we can commit to completely territorial.  Maybe 95 or 96 percent… We’re still working.  But complete territorial we may not be able to get. But we’re going to get close, and we can work with you on that.”

Chairman Camp is continuing to work on a tax reform plan, and Senate Finance Committee Chairman Max Baucus, D-Mont., has put forward his principles for tax reform.  And they have been working together on the best solution for the long-term strength of the U.S. economy.  As Senator Baucus noted before the two committees held their last joint hearing on modernizing our tax code:

“It’s time we had a tax code for the 21st century, one that can create jobs, spark innovation and expand opportunity… a balanced, commonsense plan to reform the tax code and create the jobs we need to improve our economy.”

He’s right, and now maybe they will have help from the White House.

Public Policy Tags: Tax Policy