The fate of corporate tax reform — a goal shared by virtually everyone in Washington — is almost certainly linked to a far greater challenge: rewriting tax laws for individuals.
That’s according to Elaine Kamarck, the Democratic co-chair of the RATE Coalition, a group of dozens of major companies that banded together in 2011 to press Congress and the White House to lower corporate tax rates.
They’re tantalizingly close to getting their wish. Lowering corporate rates is one of the few policy goals shared by President Barack Obama and congressional Republicans.
But the rub is whether a tax code rewrite should also extend to individuals. And lawmakers remain deeply divided on that point two months after Congress cut a fiscal cliff deal to extend the Bush-era tax breaks for most Americans.
Republicans say a tax overhaul for individuals is crucial, especially because many small business owners report their business income on their individual returns. Right now, that means those business owners are subject to rates of almost 40 percent while the top rate for corporations rests at 35 percent. It’s a subject that’s created plenty of tension between big and small business groups.
Obama is far more sheepish on the subject, not ruling out individual tax reform but spending most of his time talking about changes to the corporate system.
If history is any guide, Kamarck said both sides of the tax code will be addressed at the same time.
“We see [corporate reform] as part of a comprehensive tax reform bill,” Kamarck told POLITICO. “If we’re going to have tax reform, it’s going to be a comprehensive package.”
That’s significant coming from a group representing some of the biggest corporations in the United States. Many corporate CEOs — long aligned with Republicans — were criticized by the GOP during the fiscal cliff for leaving the impression that they were willing to see individual tax rates go up while lobbying for cuts in corporate levies.
Kamarck said she doesn’t see any lasting damage to the reputations of corporate leaders resulting from the year-end fiscal battle and believes their thoughts on policy will be taken seriously in Washington.
“You bet people listen” to the CEOs, she said. “The corporations that are listed in the RATE Coalition, these are tens of millions of jobs.”
Still, individual tax reform — with its potential impact on cherished provisions like the deductions for mortgage interest or charitable contributions — is a much heavier lift politically than a rewrite that is limited to corporations.
It’s also where the real money is. The Congressional Budget Office predicts that the United States will collect $19.7 trillion from individual income taxes between 2014 and 2023. The government would take in just $4.8 trillion from the corporate income tax during that time.
The unity on the need for corporate reform contrasts with the partisan divisions over how to rewrite tax laws for individuals, a dynamic that’s been on display once again as lawmakers bicker over how to replace the looming sequester.
The coalition’s strategy is to argue that the statutory corporate tax rate is out of line with the rest of the world, making the United States an unattractive place to do business. The group has faced criticism that it has avoided talking specifics. It hasn’t taken a firm position, for instance, on what the corporate tax rate should be and how profits generated in other countries should be taxed.
Still, Kamarck said she’s pleased with the direction of the debate.
“There’s clearly motion in Congress,” she said.
Kamarck and the coalition face two clear challenges as the year unfolds. First, they must keep tax reform on the radar. The chairmen of the House and Senate tax writing committees are clear in their commitment to move on tax reform this year. But they face a legislative calendar crowded with agenda items like guns and immigration, not to mention the sequester, government funding and the debt ceiling.
Kamarck said she is encouraged by actions like this month’s creation of 11 tax reform working groups made up of Democrats and Republicans on the House Ways and Means Committee.
“That’s a pretty good sign you’re getting attention,” she said.
The other challenge for Kamarck is keeping the coalition’s 29 members together as the tax reform debate plays out. If lawmakers move on corporate reform, the interests of largely domestic companies like Macy’s will inevitably collide with the policy goals of companies with more of an international presence, like Boeing.
“All of our members knew when they signed up that in this political climate they were going to have to put their tax expenditures on the table and so far they’re hanging in there,” she said. “So far, so good.”
Ways and Means Press Office