Senate Launches Tax Reform Working Groups

Published by Michael Novogradac on Monday, January 26, 2015 - 12:00am

Senate Finance Committee Chairman Orrin Hatch, R-Utah, and Ranking Member Ron Wyden, D-Ore., started tax reform deliberation in the 114th Congress on Jan. 15 by announcing five tax reform working groups to examine different components of the tax code and produce a report by May on the topic.

Two groups are of particular interest to the tax credit community. The community development and infrastructure group has jurisdiction over the low-income housing tax credit (LIHTC), new markets tax credit (NMTC) and historic tax credit (HTC). It will be led by Sen. Dean Heller, R-Nevada, and Sen. Michael Bennet, D-Colorado. The business income tax reform working group will examine renewable energy tax credits (RETCs) and will be headed by Sen. John Thune, R-S.D., and Sen. Ben Cardin, D-Maryland.

If the working group approach sounds familiar, it’s because it’s similar to that used by former House Ways and Means Chairman Dave Camp in the 113th Congress, when he set up 11 working groups in February 2013, which issued a 568-page report in May 2013. Ultimately, Camp used that information in a discussion draft that was released last February and then ceremonially introduced as legislation in December.

This time, the groups are in the Senate. Although all of the details have not yet been determined or made public, we understand that group members will walk through the sections of the current tax code under their jurisdiction, led by Joint Committee on Taxation staff. They will discuss the pros and cons of the current code, tax reform scoring issues, examine interaction between code sections and how tax reform could affect them and discuss proposals. Each group will be led by at least one Republican and at least one Democrat and are scheduled to produce a comprehensive, bipartisan report in May.

The biggest difference between these groups and those two years ago may be the nature of the Senate compared to that of the House. There’s a reasonable possibility that these groups may include some negotiations on the proposals, rather that serving purely as educational bodies, because of Hatch’s desire for a bipartisan proposal coming out of the Senate. At least that was hinted at by Senate Majority Leader Mitch McConnell in November when it became clear he would be the Majority Leader.

The Senate didn’t ignore tax reform issues in the last Congress. While the House had Camp’s working groups, the Senate–under the leadership of former Finance Committee Chairman Sen. Max Baucus, R-Mont.,–held weekly tax-reform discussion groups that released option papers, including one on economic and community development, which covered LIHTC, NMTC, and HTC. Those papers served more as reports of what was discussed and list of reform options discussed in testimony or introduced in recent years than as guideposts for legislation, so with Hatch in charge and Wyden enthusiastic about tax reform, it’s no surprise that this Senate’s Finance Committee is changing its approach.

The Constitution requires that tax legislation begins in the House and it’s unlikely that Rep. Paul Ryan, R-Wis., chairman of the House Ways and Means Committee, will wait on the Senate working group reports to begin his tax reform push. Indeed, Paul is leading a Ways and Means Committee retreat over the weekend of Jan. 30. But House leadership knows that the Senate must agree for legislation to advance. Hatch may choose to review the committees report and consider all his options, but not release any legislative ideas until after the House makes proposals.

Given the partisan gulf on individual tax reform evidenced by President Obama’s tax proposals announced in conjunction with his State of Union Address and the Republican reaction to them, many insiders think the House will focus first on business tax reform, where there is greater overlap between Obama and Congressional Republicans. With the appointment of the Senate working groups and with Ryan’s House Ways and Means Committee ready for action, the tax reform debate in 2015 has been launched. Reports from the working groups may play a key role in the ultimate destination.