Letter to Thomas Barthold, Chief of Staff of Joint Committee on Taxation - Tax Reform Proposals Must Consider Impact on Manufacturing

Letter

U.S. Senators Debbie Stabenow, Sherrod Brown, Robert Casey, Jr., and Ron Wyden today said any tax reform proposals that are set to come before Congress must be carefully analyzed to determine their potential impact on American manufacturing. In a letter to the Joint Committee on Taxation, Senators asked the Committee to be prepared to perform sector-by-sector analyses of tax reform proposals so Congress could be informed of the proposals' economic implications.

The Joint Committee on Taxation's nonpartisan professional staff, comprised of economists, accountants, and attorneys, advises both houses of Congress on tax legislation.

In their letter, the senators warned that if key provisions that promote domestic investment are eliminated in tax reform, manufacturing and other key sectors of the economy could be negatively affected. The senators emphasized that many of these provisions have helped create good-paying jobs, including manufacturing jobs, which have grown the U.S. economy and the middle class.

The letter reads in part: "We believe that domestic investment is critical to creating good jobs in the United States and enabling broad-based economic growth, and we will want to gauge the impact of any tax reform proposal on capital-intensive sectors such as manufacturing and other key sectors of the economy.... Given the importance of this analysis from the JCT, we are writing now to ensure that you and your staff are prepared to provide such analysis promptly upon release of the committees' tax reform proposals."

The full text of the letter and list of cosigners is below:

November 7, 2013

Thomas Barthold
Chief of Staff
Joint Committee on Taxation
1625 Longworth House Office Building
Washington, DC 20515

Dear Tom:

The House Committee on Ways and Means and the Senate Committee on Finance are developing comprehensive tax reform proposals. The proposals could have far-reaching impacts throughout the U.S. economy. A thorough understanding of those impacts will be critical to both committees' consideration of any tax reform proposal. Therefore, we write to ensure that the Joint Committee on Taxation (JCT) staff is prepared to provide analysis of the impact of the tax reform proposals, as they emerge, on various sectors of the economy and more broadly on incentives for domestic investment. We intend to request such a sectoral analysis as soon as a proposal is released.

Incentives for domestic investment are vital to domestic job creation. Many of these provisions have been essential to the creation of good-paying jobs, including domestic manufacturing jobs, which have grown the U.S. economy and the middle class. We believe that if tax reform eliminates these important tax provisions, it could adversely affect sectors of the economy that demand new domestic capital investment and that create and support good-paying jobs.

Many tax reform proposals aim to eliminate or phase out specific tax expenditures in order to finance lower tax rates, generally. These tax provisions serve specific policy goals, notably the promotion of manufacturing and capital investment in the United States. If tax reform eliminates these provisions, the net effect could be to weaken incentives for manufacturing and capital investment, increasing effective tax rates even with lower nominal tax rates.

An analysis by economist Martin Sullivan, published in Tax Notes, illustrated that a tax reform that eliminates three key domestic investment incentives - accelerated depreciation, the domestic production activities deduction, and the R&D credit - would have sharply divergent impacts on different sectors of the economy. Domestic manufacturers, for example, would pay higher effective rates because the loss of incentives outweighs the tax benefit from lower rates.

The tax-writing committees are also considering major changes to the international tax system. International tax reform will also have important ramifications for many sectors of the economy and for domestic investment.

We believe that domestic investment is critical to creating good jobs in the United States and enabling broad-based economic growth, and we will want to gauge the impact of any tax reform proposal on capital-intensive sectors such as manufacturing and other key sectors of the economy.

It would be premature to speculate what specific provisions might be eliminated in the tax reform proposals that are being developed in the tax-writing committees. Detailed analysis of the provisions, including, but not limited to, sector-by-sector analysis in changes to effective tax rates, will be crucially important in both committees' consideration of the proposals as we move forward. Given the importance of this analysis from the JCT, we are writing now to ensure that you and your staff are prepared to provide such analysis promptly upon release of the committees' tax reform proposals.

We look forward to working with you on the continued examination of these and other issues as they develop in the tax reform process.

Sincerely,

DEBBIE STABENOW
SHERROD BROWN
ROBERT P. CASEY, JR.
RON WYDEN

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