Incoming Senate Finance Committee Chair Orrin Hatch, R-Utah, released a 340-page tax reform paper calling for eliminating the double tax on C corporations.
Hatch will take over the Finance Committee in January 2015 and has said tax reform will be a top priority. He said his report intended to provide background on the tax system, a discussion of various tax reform proposals and some direction on where tax reform should lead. In many areas, the report offers only general background, but in several places Hatch provides very prescriptive commentary on what should be included in tax reform.
He stakes out his strongest position on the taxation of C corporations. The report says that all business income should be taxed only once, and ideally at the individual level. However, Hatch conceded that it is more practical to tax the income of public companies at the entity level, and offered various ways to integrate C corporation and individual taxation, such as allowing corporations to deduct dividends paid or providing individuals with a credit against dividend income for corporate taxes paid.
Hatch rejected any suggestion of corporate-only reform, pointing out that pass-throughs represent a large and growing share of all economic activity. He called for unifying the treatment of partnerships and S corporations under a single pass-through system that would be available to any private entity. Former House Ways and Means Committee Chair Dave Camp, R-Mich., proposed such a system in one of his early tax reform discussion drafts.
Hatch also echoed Camp's proposals on international taxes, saying the country needs to move toward a territorial system with backstops to prevent an erosion of the U.S. tax base. Hatch did not provide specifics, but said that the economy would benefit from incorporating more consumption tax elements into the individual income tax system, although he rejected the idea of a value-added tax.
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