Market Overview

Congress Considers Making Offshore Tax Loopholes Permanent

On Tuesday, the House Ways and Means Committee holds a hearing to discuss making permanent several of multinationals’ favorite tax code provisions, including the Apple loophole.

Thus the House, like the Senate, is in the early stages of enacting these expired provisions yet again.

That’s how Congress traditionally gives multinationals their offshore tax loopholes: propose them as “temporary," and then extend them with such regularity they are functionally permanent and their nickname is the “extenders."  So Chairman Camp’s hearing is the more honest approach.

Why Focus On The Extenders?

More honest, however, isn’t the same as good policy. And that’s too bad, because other parts of the Chairman’s tax reform proposal are good policy, such as his proposal to solve the carried interest problem and to impose a tax on “too-big-to-fail” banks.

Related: Taxing Wages As Capital Gains

Fixing carried interest would bring a little fairness to the tax code by ensuring that private equity guys and hedge fund managers pay income tax on their income, instead of paying the much lower capital gains tax rate on it.

The Bank Tax: A Good Idea

Imposing the bank tax is an even bigger deal.  Not only  would raise $86.4 billion over 10 years, but it would make an important statement: taxpayers expect something back from the bailed out bankers.

As Chairman Camp’s provision by provision description of his tax reform legislation explains,

“The provision would address the significant implicit subsidy bestowed on big Wall Street banks and other financial institutions under Dodd-Frank.” Calling them “’too big to fail,’…effectively subsidizes these big banks and financial institutions, providing them lower borrowing costs than they would face without that special designation. [tax reform] can and should help recapture a portion of that implicit subsidy.”

Regardless of whether the details of the Chairman’s proposal are right, surely that tax is worth talking about in public. Instead, Chairman Camp is using his first tax hearing since announcing his reform package on February 26th to focus on the multinationals’ pet provisions.

Politics Trumps Policy, Again

Why? Chairman Camp has already incurred the political cost for putting real policy on the table: Wall Street donors hate him.  Consider Politico’s report, headlined “Wall Street threatens GOP on bank tax."

Politico explains: “Rep. Dave Camp’s tax proposal — which jacked up taxes on banks and threatens the bottom line of some major private equity players in New York — has infuriated donors in high finance.” Politico adds: “The tax proposal itself is not even expected to get a vote in the House, since it’s so unpopular among most Republicans. That Wall Street would react so ferociously to a dead-end bill is a reminder of how hard a powerful player is willing to fight to protect its interests in Washington.”

Perhaps the backlash explains Rep. Camp’s decision not to run for re-election. This Huffington Post profile makes clear that he was one of the very rare Congressmen who focused on policy over politics, so much so that even Democrats were shocked he’d make such a substantive, politically risky proposal.

Given that context, Chairman Camp has only so much time to make a strong, public case for tax reform. Why is he starting the conversation by arguing that offshore tax loopholes (and other giveaways) be made permanent?

 

Posted-In: Apple Congress Dave Camp Huffington Post LoopholePolitics Economics General Best of Benzinga

 

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