Nov. 17 (Bloomberg) -- Business-friendly House Democrats are urging Congress to overhaul the tax code by lowering corporate rates, removing breaks and easing the burden on U.S. companies’ overseas operations, mirroring some Republican goals.
The 42-member New Democrat Coalition departs from Republicans’ tax proposals by emphasizing the progressivity of the tax code and not focusing on preventing a tax increase, according to a set of principles the group will release today.
“We think this is a seminal moment,” said Representative Ron Kind, a Wisconsin Democrat who helped lead the effort. “It’s a great opportunity, and one of the big drags is not only the complexity of the code but the uncertainty of the code.”
The group, led by Representative Joseph Crowley of New York, said it designed its agenda to encourage economic growth and innovation at a time when lawmakers in both parties are discussing a tax code overhaul. The deficit-reduction supercommittee, which includes the top two tax writers in Congress, is considering setting parameters for a tax code rewrite to occur over the next year.
The New Democrat Coalition’s principles sidestep some of the most significant issues that supercommittee members are debating as they near their Nov. 23 deadline. Those are the same issues --including the size of government -- that often divide Democrats and Republicans and make a tax code rewrite difficult.
The coalition’s principles emphasize the need to change the individual and corporate parts of the tax code without saying anything about altering the top individual rate and breaks such as the mortgage interest deduction. The group doesn’t directly address whether an overhaul of the tax code should increase revenue, though it indicates that the tax code should raise enough to run the government.
“We’re trying to change the code to promote growth to have more revenue and a larger tax base from which to derive those revenues,” said Crowley, who, like Kind, is a member of the Ways and Means Committee. “We’re not for revenue-neutral. We’re for growth. But we’re not for busting out our deficit.”
Instead, the New Democrat Coalition focuses on concepts it says would encourage economic growth. Those include backing innovation, reducing the incentive for U.S. companies to keep profits overseas and encouraging companies to bring home untaxed offshore earnings to create jobs.
“Democrats and Republicans can pretty much agree on these, for the most part,” said Michael Linden, director of tax and budget policy at the Center for American Progress, a Washington advocacy group often aligned with Democrats. “These are generally good principles to talk about building a tax reform plan. Where it gets sticky is, well, how much revenue should we be raising and how do you accomplish some of these principles.”
The focus on international competitiveness has bipartisan support, said Representative Tom Reed, a New York Republican on the Ways and Means Committee who said he nonetheless expects a debate between the parties over the overall amount of revenue.
“At the end of the day,” he said, “I believe we’ll move the ball down the field toward getting a more competitive corporate structure.”
Unlike Republican Ways and Means Committee Chairman Dave Camp, the Democratic group doesn’t specifically endorse a territorial system that would exempt most overseas profits from taxation. It also doesn’t take a position on the stand-alone repatriation tax holiday being sought by companies such as Qualcomm Inc. and Cisco Systems Inc., instead expressing openness to the idea as long as there are clear links between the repatriation and job creation.
“It has to be a productive enterprise,” said Representative Gerry Connolly, a Virginia Democrat. “Simply giving people a tax break in and of itself is not necessarily a productive investment in the economy.”
Some of the group’s positions may work at cross purposes. They call for lower rates, financed by an attempt to “reduce or remove tax benefits that add further complexity.”
At the same time, the group urges changes to the code that would encourage domestic manufacturing and innovation, which could require narrowing the tax base.
Representative Sander Levin of Michigan, the top Democrat on the Ways and Means Committee, has warned that the trade-off between corporate breaks and lower tax rates might hurt domestic manufacturers that benefit from several provisions in the current code.
Crowley said there may be more efficient ways to assist domestic manufacturers.
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