Last year ended with a flurry of federal tax legislative activity, culminating in the enactment on December 18, 2015, of Pub. Law 114-113, the “Consolidated Appropriations Act, 2016.”
Read a KPMG report [PDF 542 KB] that summarizes and includes observations about key provisions in the new law (including the provisions in the “Protecting Americans from Tax Hikes Act” (PATH Act)).
Against this background, what tax issues can be expected to be on the legislative radar screen in 2016? Here are a handful of issues to watch in the coming months.
Printable version of this report is available here [PDF 57 KB].
House Ways and Means Committee Chairman Kevin Brady (R-TX) has indicated that the committee will focus on international tax reform in 2016 and may even vote on an international tax reform bill this year.
Meanwhile, Senate Finance Committee Chairman Orrin Hatch (R-UT) has reportedly said he might release a tax reform proposal soon. Such a proposal might involve integration of the corporate and individual income tax—a topic that a Senate Finance Committee working group addressed at length in its report last summer. Read TaxNewsFlash-Legislative Updates
Because 2016 is an election year, politics are likely to complicate the legislative process and the ability (and time) to dive deeply into complex tax issues even more than usual, reducing the chances of significant tax reform actually being enacted this year. Nonetheless, proposals that gain traction in 2016 could lay the groundwork for future legislation.
On the other hand, because the PATH Act made permanent some of the “big ticket” provisions that used to be temporary (such as the research credit and the so-called “active financing exception”), the “math” of future tax reform can be expected to be somewhat easier. In other words, the revenue cost of including those now-permanent items in a reformed Internal Revenue Code would not need to be offset, but eliminating or carving back some of those same items would raise revenue for other objectives, like rate reduction.
A corporate integration proposal could, of course, be viewed by many as a relatively radical approach to tax reform. Although corporate integration is not a novel idea (both Bush administrations seriously studied policies to mitigate the perceived double taxation of income earned by corporations), no comprehensive proposal has ever been considered by Congress. Such a proposal would be dramatically different from the 1986-style tax reform proposal put forth in 2014 by then-Ways and Means Committee Chairman Dave Camp (R-MI), and it could raise many issues on which stakeholders would want to provide feedback.
Consequently, building support for a corporate-integration proposal could be a longer-term effort. Given both the general legislative dynamics at play in 2016 and the complexity of issues raised by corporate integration, enacting some form of corporate integration in 2016 would be very difficult.
Several taxes (and related tax rates) dedicated to the airport and airway trust fund currently are scheduled to expire March 31, 2016. Read TaxNewsFlash-Legislative Updates
Many lawmakers likely will want to extend these taxes before their expiration. Although legislation extending these taxes could be a vehicle for other (unrelated) tax law changes, that does not currently seem likely.
The PATH Act extended through October 1, 2016, the general ban on states and localities taxing internet access or placing multiple and discriminatory taxes on internet commerce. Proponents of legislation that would allow states to require sellers without physical presence to collect sales tax (e.g., the “Marketplace Fairness Act”) can be expected to continue their efforts to attach such legislation to further extension of the Internet Tax Freedom Act.
Although the PATH Act made some previously temporary tax preference provisions permanent and extended others for several years, it extended a number of others only through 2016. Read a KPMG report [PDF 542 KB] for the list of provisions extended in the PATH Act
In addition, the PATH Act did not address some temporary provisions that already had end-of-2016 expiration dates, such as the lower adjusted gross income (AGI) floor for individuals age 65 years and older for purposes of the medical expense deduction rules. The breadth and depth of political support for extension of some of the provisions that expire in 2016 might not be as strong as was the case for those made permanent or extended until 2020. The fate of these 2016 extenders will be a key issue to watch later this year
There will continue to be much talk about taxes and tax reform on the campaign trail, including discussions of tax reform and the individual rate structure. Lawmakers will want to show voters how members of their party would govern in the future. Election considerations may play a role in the topics addressed in hearings, bills that are introduced and marked up, amendments are offered, and other legislative matters—even if those issues are not expected to culminate in enacted legislation this year
Finally, tax legislation—like any legislation—may be influenced by events. Last year's surprise retirement of House Speaker John Boehner (R-OH) and the ascension of former Ways and Means Chairman Paul Ryan (R-WI) to the speakership shifted the path of tax legislation in important ways. Unforeseen events thus may well influence tax issues to be addressed by Congress.
For more information, contact a member of KPMG’s Washington National Tax (WNT) Federal Legislative and Regulatory Services group:
John Gimigliano | +1 202-533-4022 | firstname.lastname@example.org
Carol Kulish | +1 202-533-5829 | email@example.com
Tom Stout | +1 202-533-4148 | firstname.lastname@example.org
Jennifer Bonar Gray | +1 202-533-3489 | email@example.com
© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.