With The Election Over, Is Corporate Tax Reform Possible?

The 2014 midterm elections have come and gone, leaving the Republicans in control of both the House and Senate. In this new environment, is meaningful corporate tax reform a realistic possibility?

According to the Washington Post, the Obama administration is hoping that the now more secure Republican party will be willing to work with him on a variety of issues. Notable among these is tax reform and infrastructure spending – issues that are intrinsically linked in the current environment.

There are two major obstacles to accomplishing tax reform, according to the Brookings Institute. The first is the disagreement as to where cuts to corporate tax expenditures and interest deductions should be made. By and large, this is a disagreement within the business community. Because it is generally accepted that any tax reform will have to be revenue neutral, arguments surrounding corporate base broadening to support rate reductions are likely to play a major role.

The treatment of corporate revenue from foreign sources is the second major point of contingency. Republicans would like to implement a territorial system that would only tax revenue generated in the United States. This would dramatically reduce revenues from this tax, but Republicans argue that it would allow business owners who are currently stashing foreign-generated revenue in subsidiary companies to invest this money in the U.S. The left would prefer to implement a true worldwide system that would tax the income of U.S. multinationals wherever it is earned and deduct costs wherever they are incurred. Both sides agree that the hybrid system is a clumsy middle ground.

Zachary Goldfarb with the Washington Post noted that there is some room for compromise. In particular, the sequester cuts coming 14 months from now could potentially motivate Republicans to work with the president in order to avoid defense cuts. However, this wouldn’t necessarily mean that either side would get more than the aversion of spending cuts that weren’t intended to be made in the first place. It wouldn’t mean the tax cuts that the right wants or the domestic investment that Obama wants.

If you are looking to find out how corporate tax reform can affect your estates please contact a Scarinci Hollenbeck attorney to discuss your options.