A Republican member of the House Ways and Means Committee this week released a plan for a comprehensive tax reform option with a credit-invoice value added tax (VAT).
Rep. Jim Renacci (R-OH), a member of the House Ways and Means Committee, on July 14, 2016, released a white paper [PDF 1.47 MB]—Simplifying America’s Tax System (“SATS plan”)—outlining a comprehensive tax reform proposal.
With respect to businesses, the SATS plan would:
With respect to individuals, the SATS plan proposes:
Rep. Renacci has indicated that he views his white paper as the “beginning of the conversation” and that he seeks feedback from taxpayers. While general comments are welcome, he is particularly interested in comments on particular questions set forth in the white paper concerning:
Last month, House Republicans released a "blueprint" for tax reform that proposes to reduce tax rates for businesses and individuals and to move the U.S. tax system closer to a consumption-based tax system through reforms of the income tax rules (without providing a VAT or national sales tax). The blueprint was developed by Ways and Means Chairman Kevin Brady with input from the broader House Republican caucus. Read TaxNewsFlash-Legislative Update
Rep. Renacci’s proposed SATS plan reflects an even more overt move to a consumption-based system with respect to business activity—it would completely eliminate the current corporate income tax and replace it with a credit-invoice VAT system.
The move towards a consumption-based system reflected in both the blueprint and the SATS plan underscores that House Republican tax-writers are looking at tax reform in a fundamentally different manner than as in the past. If Republicans continue to control the House next year, these approaches can be expected to be the new starting point for tax reform discussions, rather than the Tax Reform Act of 2014 proposed in a previous Congress by then-chair of the Ways and Means Committee, Dave Camp.
Moreover, it is worth noting that the SATS plan includes some features that may have bipartisan appeal. For example, the SATS plan would dedicate revenue from a one-time repatriation tax to the highway trust fund; it is described as similar to a VAT proposed by a Democratic senator (Sen. Cardin); it would expand the EITC and the standard deduction; and it would eliminate “distortions” resulting from the current rate differential between ordinary income and capital gain.
Still, as the white paper indicates, there are many details that remain to be resolved. For example, because VAT regimes shift the tax from income to consumption, they are often considered to be less progressive in allocating the tax burden. Thus, it remains to be seen how much political and stakeholder support may emerge for the proposal. Nonetheless, it could be a starting point for discussion and negotiation.
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