American Benefits Council
Benefits Byte

2015-024

February 24, 2015

The Benefits Byte is the American Benefits Council’s regular e-mail and online newsletter for members only, providing timely reports on legislative, regulatory and judicial developments, along with updates on the Council’s activities in support of employer-sponsored benefit plans.

The Benefits Byte is published by the American Benefits Council, based on staff reports and edited by Jason Hammersla, Council director of communications. Contact information for Council staff related to specific topics can be found at the end of each story.

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Senate Finance Committee Hearing Emphasizes Need for Tax Reform, Lower Corporate Tax Rates

The U.S. Senate Finance Committee continued its examination of possible tax reform in a February 24 hearing focusing on ways to reform the tax code to promote growth in wages, jobs and the economy. The discussion centered on the need to lower the U.S. corporate tax rate, not only to keep U.S. corporations competitive globally but also to benefit American workers.

As the Senate committee with jurisdiction over the tax code, the Finance Committee has signaled a strong interest in tax reform which, of course, could have meaningful implications for the tax incentives related to employer-sponsored benefit plans. Chairman Orrin Hatch (R-UT) recently released an analysis, Comprehensive Tax Reform for 2015 and Beyond, outlining various issues likely to come up in the effort to reform the tax code, including employer-sponsored benefits (see the December 12, 2014, Benefits Byte). The committee has also announced the launch of five bipartisan tax working groups within the committee in an effort to facilitate congressional consideration of comprehensive tax reform in the 114th Congress, including a “Savings and Investment” working group, which will cover retirement savings policy (See the January 15 Benefits Byte).

In his opening statement, Chairman Hatch suggested that there is bipartisan interest in tax reform and stressed the need to continue working towards action. While he expressed disagreement with the provisions in the President’s recent budget “aimed at significantly hiking taxes on capital as well as on savings and investment,” he welcomed the willingness of the Obama Administration to engage in ways to improve the tax system for businesses and workers.

Ranking Democratic member Senator Ron Wyden (D-OR) referenced the committee’s last hearing on tax reform (see the February 10 Benefits Byte) in his opening statement, noting that the approach to tax reform used in the Tax Reform Act of 1986 emphasized equal tax treatment of income derived from both wages and investments, as well as the importance of bipartisanship to achieve tax reform.

The committee heard testimony from the following witnesses:

  • Jane G. Gravelle, senior specialist in economic policy at the Congressional Research Service (CRS), examined major tax expenditures and potential avenues for reform. She suggested reducing the differential tax treatments on returns on investments based on the source of the return, including “the favorable treatment of pension and retirement earnings.” She also expressed support for the 40 percent excise tax on high-cost health coverage under the Patient Protection and Affordable Care Act (PPACA) to mitigate the tax expenditure caused by the exclusion of employer-provided health benefits from employee’s income. Her testimony also suggests “lowering the level at which the tax applies.”
  • Michael Boskin, professor of economics at Stanford University’s Hoover Institution, said that the current tax system is biased against savings and investments and has kept the U.S. national savings and investment rates low. He emphasized that addressing this imbalance should be a major component of tax reform, especially “given the closely related negative side effects on saving and investment from the growth of the national debt and unfunded social insurance transfers to the elderly.” He advocated for a transition to a consumption tax, or taxing only the income spent on goods and services.
  • John Diamond, fellow in public finance at Rice University’s Baker Institute for Public Policy and chief executive officer of Tax Policy Advisers, LLC, stressed that serious consideration should be given to taxing consumption, rather than income based tax reform. He also provided macroeconomic analyses of various recent proposals for tax reform, including the Tax Reform Act of 2014, as introduced by previous U.S. House of Representatives Ways and Means Committee Chairman Dave Camp (R-MI).
  • Laura D’Andrea Tyson, professor of business and administration and economics at the University of California-Berkeley’s Haas School of Business, testified on the importance of significantly reducing the corporate tax rate and stated that “of all taxes, corporate income taxes are the most harmful to economic growth because they reduce the returns to savings and investment.” Her testimony also advocated moving the U.S. international tax system from a worldwide approach (in which the foreign earnings of U.S. companies are subject to U.S. corporate tax with the amount owed offset by a credit for taxes paid in foreign jurisdictions) to the territorial tax system used by most U.S. global competitors (in which international companies are allowed to repatriate their active foreign earnings at home without paying a significant additional domestic tax).

During the question-and-answer portion of the hearing, the witnesses discussed how the corporate tax rate is hindering economic growth and making the U.S. less competitive internationally. In response to a question on how to garner public attention to the need for tax reform, Tyson suggested increasing the gasoline tax or expanding it to a consumption-based carbon tax.

Bostick suggested that Americans would be willing to sacrifice certain specialized individual tax credits for lower tax rates and increased simplicity. In response to a question on the importance of revenue neutrality, Diamond said that revenue neutral tax reform is important to get reform passed. Bostick also commented that the current slowdown in the rise of health care costs began before the implementation of PPACA and that, despite some debate, most health economists believe spending will soon begin to rise again.

Tyson responded to a question from Sen. Dan Coats (R-IN) that while the U.S. has done a lot to encourage retirement savings, the incentives need to be targeted because they are currently benefiting primarily high-income savers. While Sen. Wyden has also expressed concerns about the current retirement tax incentives in the past, the Council has consistently argued and presented evidence that they provide a strong and effective incentive for individuals across all income levels to save for a secure retirement. Senator Hatch has also repeatedly refuted assertions that retirement savings tax incentives are “upside down” and continues to stress the importance of a bipartisan approach to retirement policy (See the December 1, 2014, Benefits Byte).

For more information, contact Lynn Dudley, senior vice president, global retirement and compensation policy, or Diann Howland, vice president, legislative affairs, at (202) 289-6700.

 



The American Benefits Council is the national trade association for companies concerned about federal legislation and regulations affecting all aspects of the employee benefits system. The Council's members represent the entire spectrum of the private employee benefits community and either sponsor directly or administer retirement and health plans covering more than 100 million Americans.

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