Ryan, Hatch Seek Help in Surmounting Tax-Overhaul Obstacle

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U.S. Representative Paul Ryan
Representative Paul Ryan and Senator Orrin Hatch sent a letter to business groups Monday, looking for ways they can revise the tax code for those businesses without cutting individual rates. Photographer: Scott Eells/Bloomberg

(Bloomberg) -- The top Republican tax writers in Congress are looking for help as they try to surmount one of the biggest barriers to revamping the tax code: the millions of businesses that pay taxes through their owners’ individual returns.

Representative Paul Ryan and Senator Orrin Hatch sent a letter to business groups Monday, looking for ways they can revise the tax code for those businesses without cutting individual rates. They want a response by May 31, and the deadline signals the narrow time frame for major tax changes to be made before the presidential campaign will dominate Congress.

“We are looking for ideas on how to reduce the effective tax rate without reducing the statutory tax rates in a manner that will make small businesses more competitive and better able to invest, grow, hire, and increase wages for their employees,” Ryan and Hatch wrote to the Coalition for Fair Effective Tax Rates.

The group’s members include the National Beer Wholesalers Association and the Petroleum Equipment Institute.

After years of trying to address individual and business taxation together, Ryan and Hatch are now taking an approach favored by President Barack Obama -- looking for overlap now on business taxation and waiting on broader changes.

Ryan, Hatch and Obama agree that the U.S. corporate tax rate of 35 percent should be lowered and that some business tax breaks should be curtailed, creating the potential for a deal.

International Rules

They disagree on the details of international tax rules and on the budgetary implications of any tax deal.

Jason Furman, chairman of Obama’s Council of Economic Advisers, told reporters on a conference call Monday that there was high-level agreement as well as real problems to work through.

“There are a lot of areas of overlap but there are also important differences as well as significant complexities,” Furman said.

He said the administration wants to make sure that “you’re not playing games with revenue neutrality and trying to really expand the deficit while claiming revenue neutrality, that you’re closing genuine loopholes and not just doing timing shifts.”

The biggest obstacle is how to address what are known as pass-through businesses. They receive most of the same tax breaks that corporations do though they are subject to the rates for individuals that Obama and Democrats don’t want to lower.

‘First Phase’

“If President Obama is willing to help us achieve a first phase of tax reform focused in part on business income, we owe it to American workers and their families to see if we can find common ground,” Ryan and Hatch wrote in the letter.

Including sole proprietorships and farms, there are 34.6 million pass-through businesses and 1.6 million C corporations in the U.S., according to data released last week by the congressional Joint Committee on Taxation. The C corporations, subject to the corporate income tax, reported 57 percent of all net business income in 2012, according to JCT.

Ryan, of Wisconsin, is chairman of the House Ways and Means Committee. Hatch, of Utah, is chairman of the Senate Finance Committee.

To contact the reporter on this story: Richard Rubin in Washington at rrubin12@bloomberg.net

To contact the editors responsible for this story: Jodi Schneider at jschneider50@bloomberg.net Laurie Asseo

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