Tax reform hits business backlash

Work on tax reform is accelerating on Capitol Hill — but business groups are lining up to throw sand in the gears.

Senate Finance Committee Chairman Max Baucus (D-Mont.) released a trio of tax reform proposals this week, forcing companies to confront the tax breaks they’d have to give up in exchange for lower rates.

Corporate advocates widely panned two of those proposals, with a wide range of sectors saying they missed the mark.

“You have to give Baucus credit for actually putting the bad news out there,” said Clint Stretch, a former top staffer at both Deloitte Tax and the Joint Committee on Taxation.  

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But at the same time those groups were slamming Baucus’s work, some of them were also flooding the halls of Congress to boost their lobbying efforts on behalf of tax reform.

The push and pull indicates tax reform remains a high priority for business — but also that Baucus and House Ways and Means Committee Chairman Dave Camp (R-Mich.) will face stiff challenges as companies and taxpayers see what’s on the chopping block. 

“Every company in America, and every company in the RATE Coalition, is going to have to look at a final product and decide where they stand,” said Jim Pinkerton, a former adviser to President Reagan and a co-chair of Reforming America’s Taxes Equitably (RATE), one of the corporate coalitions pushing for tax reform.

Given the revenue divide between the two parties, many lawmakers and lobbyists aren’t betting that Camp and Baucus will successfully get tax reform across the finish line in their last year with the tax-writing gavels.

The two chairmen are already behind schedule. Camp had vowed to have a markup by the end of the year but appears likely to miss that deadline as the GOP seeks to keep the public’s attention on ObamaCare.

In the Senate, the Finance chairman is trying desperately — and, so far, with little success — to find a middle ground between the close to $1 trillion in new revenue that top Democrats want, and the no tax increase stance of Republicans.

Baucus this week rolled out proposals to overhaul how the offshore income of corporations is taxed, and a Thursday plan to slow down how quickly businesses can write off expenses.

The Business Roundtable, the Chamber of Commerce and a string of other business groups — all of which represent companies that Baucus says he is trying to help — all suggested that his international draft would move the U.S. in the wrong direction.

Thursday’s response might have even sparked criticism from a wider range of groups.

The oil and gas industry, and manufacturers insisted that Baucus’s plan to spread out depreciation schedules for research, drilling costs and other items would be counterproductive.

“We are energy producers and users, so any change for the deduction for drilling and exploration will change the cost of energy, so that's a concern for us,” Dorothy Coleman of the National Association of Manufacturers told The Hill. “Manufacturers do the bulk of research and development in this country, so when you change the tax treatment of R&D expenses, that's a concern for us.”

Manufacturers and wholesalers said the Finance Committee chairman’s push to repeal the “last in, first out” accounting method, or LIFO, would be a knockout punch to many smaller companies. Under LIFO, companies can assume that they’ve sold the newest parts of their inventory, leading to a lower tax bill.

Even advertisers and broadcasters were steamed about the latest Baucus plan, in which he calls for allowing only half of advertising expenses to be written off immediately. Currently, companies can deduct their full advertising budget in the same year.

But Baucus revealed some of the downsides to tax reform without revealing the cut in tax rates, and some business advocates did find portions of his proposals to like.

Manufacturers and wholesalers, for instance praised Baucus for expanding an expensing deduction that helps small businesses.

The Finance Committee chairman wants to reduce the corporate rate — now 35 percent — down to below 30, and his aides would only say Thursday’s proposals would finance a cut of at least several percentage points.

With that in mind, groups said this week’s proposals left no doubt they would have to ramp up their lobbying efforts.

“It's no longer theoretical and no longer just the purview of the committees,” said Jade West, senior vice president of government relations for the National Association of Wholesaler-Distributors (NAW). “There's a long recess in December, and I expect our members will be talking to their lawmakers in their district offices.”

West also manages the LIFO Coalition, and the lobbyist said the group would meet after the Thanksgiving recess to come up with lobbying strategy to protect the accounting method.

At the same time, Camp is urging business advocates of tax reform to give a boost to what he’s calling the “next phase” of the process — educating lawmakers not on his committee on the ins and outs of tax overhaul.

Camp discussed the issue this week with at least three separate coalitions — including the Let’s Invest For Tomorrow (LIFT) America coalition, which called Baucus’s international draft “punitive.”

Tax executives from the RATE Coalition also met with lawmakers this week on tax reform, as did representatives from the National Retail Federation and the Retail Industry Leaders Association.

Advocates hope that outreach can help show GOP leaders that the demand remains for a tax reform bill, a broad measure that would at least take a deep look at cherished tax breaks dealing with housing, charitable contributions and healthcare.

“You just want to show that there are people that are for tax reform,” said Rep. Patrick Tiberi (R-Ohio), a senior Ways and Means Committee member. “A lot of the ink that is out there is that people aren’t for tax reform.”