At least some Congressional representatives from both sides of the aisle were speaking amicably on Wednesday about the prospects for helping small businesses in the coming year.
True, they weren't on the floor of the House of Representatives, which has been mired for weeks in bitter partisan infighting over issues like funding the Department of Homeland Security, or the Senate where an unauthorized letter to the Iranian government from Republican Senators has provoked an outrcy. Instead, at an informal panel on Wednesday, they were speaking sensibly to each other at offices of law firm Arent Fox in New York, about prospects for a bipartisan tax overhaul, the need for infrastructure rebuilding, and whether Dodd Frank will survive in the newly Republican Congress.
Included in the conversation were sitting Congressmen Mike Fitzpatrick (R., Pa.) and Gregory Meeks (D., N.Y.), who were joined by former Senator Byron Dorgan (D., N.D.) and former Congressman Philip English (R., Pa.)
And to hear them talk of things, there’s actually much more room for agreement in Congress than is generally known. True, the chances are slim for a grand bargain on tax reform, which was last seen in 1986 and included both personal and corporate taxes, thanks to wily statesmen of both political stripes. But movement around the edges is highly likely now, particularly on the corporate side.
Tax reform is a political issue that separates us, said Meeks, who added that behind the scenes talks were necessary for making progress. He further noted that Wisconsin Congressman Paul Ryan, the Republican chairman of the House Committee on Ways and Means and Senator Ron Wyden (D., Ore.), his counterpart on the Senate Finance Committee are actually attempting to come up with a bipartisan plan to lower corporate taxes.
Currrently the top corporate rate is 35 percent, but few big businesses actually pay that rate, Dorgan and others said. Corporate giant General Electric, for example, pays almost no taxes. Meanwhile, small businesses bear the brunt, said Fitzpatrick.
“The effective rate of most large corporations is much too low, and if you are a small business paying 35 percent, this [system] is not working for you,” Fitzpatrick says.
What a compromise might look like, however, still has a lot of moving parts. Certainly it will involve closing loopholes, deductions, preferences and some write-offs to broaden the tax base, said Dorgan, who sat on the House Committee on Ways and Means in the 1980s. For his part, English cautioned that not every change would be beneficial for small businesses. Among other things, loopholes on the table that could affect sole proprietors include deductions for state and local taxes, and more generally preferences for certain industries like real estate, financial services and manufacturing. Additionally, tax loopholes for energy production and incentives for renewable energy production could also face the axe.
“A lot of other provisions that are currently under the radar screen could be soaked up,” English said. “It is a very-target rich environment.”
Besides taxes, infrastructure projects might also get some uptake on Capitol Hill. Policy analysts say improving our outdated highways, bridges, airports, and even our broadband infrastructure would boost the economy significantly by adding construction jobs and improving the business environment. The president suggested there was room for bipartisan agreement on infrastructure upgrades in his January State of the Union.
Yet another tax proposal related to infrastructure may also see the light of day. A unique plan that’s being formulated in a number of pending bills, including one sponsored by Fitzpatrick last year, would allow businesses to repatriate a portion of the $3 trillion of corporate profits held overseas by loaning it to local infrastructure projects through a newly created infrastructure bank. The funds could also be used to replace money currently being lost to the Highway Trust Fund, which is teetering on the brink of insolvency, according to the Congressional Budget Office.
"A lot of Democrats and Republicans are settling on this idea of repatriation" for infrastructure, Fitzpatrick said.
Still, such plans will face considerable push back, Dorgan said. If repatration is allowed, it could wind up encouraging U.S. companies to move their jobs offshore, to take advantage of favorable tax treatment.
“Repatriation is very controversial for logical reasons,” he added. “But we need to find revenue sources to deal with some of these issues.”