What’s on the Horizon for Tax Reform in 2015?March 20, 2015
The White House and the new congress continue to look for common ground on tax legislation and tax reform in 2015. The 114th elected congress intends to work together with Barack Obama during his final 2 years as president to achieve the much debated need for tax reform.
The two tax-writing committees, the House Ways and Means and Senate Finance, have so far approved a number of tax bills impacting individuals and businesses. Among the bills that the House Ways and Means committee has passed onto the senate for its approval are to:
- Make permanent Code Sec. 179 small business expensing ($500,000 dollar limit/$2 million investment limit, indexed for inflation)
- Broaden qualified education expenditures for Code Sec. 529 college savings plans
- Extend and expand the charitable deduction for contributions of food inventory
- Enhance and make permanent the research tax credit
- Make permanent the reduced recognition period for built-in gains of S corporations (5 years instead of 10 years)
- Extend permanently the special rules for tax-free distributions from IRAs for charitable purposes by qualified individuals
The Senate Finance Committee (SFC) has also been busy with tax legislation. The SFC has approved, among other bills, legislation to:
- Modify the alternative minimum tax for small insurance companies
- Provide special rules for charitable contributions to agricultural organizations
- Create a Waste-Heat-to-Power investment tax credit
- Exclude from income certain compensation received by public safety officers and their dependents
- Require the IRS to notify exempt organizations before revoking exempt status for failing to file returns
- Exclude from Gross Income certain clean coal power grants
- Create a Military Spouse Job Continuity Credit
The Speaker of the House of Representatives, John Boehner, R-Ohio, has signaled his support for some of the bills. Boehner controls the House's schedule, and his support is necessary to bring bills before the full House for a vote. Billsare usually placed on the calendars in the order of which they are reported but they don't usually come to the House floor for a full vote in this order. The Speaker of the House and the Majority Leader decide what will reach the floor and when. Some bills never make it to the floor for a House vote.
In the Senate, the new Majority Leader, Mitch McConnell of Kentucky, has said he wants to pass tax legislation this year but has not provided any timetable for those efforts. Because of Senate rules, bills generally come more slowly to the floor for a vote and often are subject to a lengthy amendment process. The Senate also generally requires a supermajority of 60 votes to approve tax legislation.
All of the key players, President Obama, Speaker Boehner, Majority Leader McConnell, along with the chairs of the House and Senate tax-writing committees, have all voiced their support for tax reform. However, the parties differ on the scope of tax reform and how to pay for the proposed bills.
President Obama's fiscal year 2016 budget recommendations, released in early February, could be a catalyst for tax reform, especially the president's proposals for small businesses. Many of the small business proposals, such as enhanced Code Sec. 179 expensing, enjoy bipartisan support. As in past years, the debate centers around how to pay for these and other tax reform bills. President Obama has proposed to eliminate fossil fuel tax breaks, repeal LIFO and other revenue raisers to pay for business tax reform.
Affordable Care Act
The Affordable Care Act (ACA) is another potential hurdle to tax reform this year. The House has approved legislation to repeal the ACA, and Senate Republicans have offered replacement bills. The real test of how the ACA could impact tax reform will come later this year when the U.S. Supreme Court makes a decision in the King vs. Burwell case. In this case, the plaintiffs argue that the IRS wrote regulations that were contrary to the original law passed by Congress. If the Supreme Court determines that the IRS regulations changed the law to extend the health insurance premium tax credit under Reg. 1. 36B-2 to individuals obtaining health insurance from federally facilitated healthcare insurance exchanges instead of just state-run exchanges, then President Obama is expected to call on Congress to come up with a legislative solution. If the White House and Congress can reach an agreement, it would be a significant victory and a good omen for future tax reform possibilities.
If you have any questions about pending tax legislation or tax reform, please contact our office.
Disclaimer: Any written tax content, comments, or advice contained in this article is limited to the matters specifically set forth herein. Such content, comments, or advice may be based on tax statues, regulations, and administrative and judicial interpretations thereof and we have no obligation to update any content, comments or advice for retroactive or prospective changes to such authorities. This communication is not intended to address the potential application of penalties and interest, for which the taxpayer is responsible, that may be imposed for non-compliance with tax law.