Senator Ron Wyden (D-OR) has been a strong advocate for comprehensive tax reform since he joined the Senate Finance Committee in 2005. During his tenure on the Committee, he has introduced a series of comprehensive tax reform bills, most recently a bipartisan measure with Senator Dan Coats (R-IN).
Now that he is the Senate Finance Committee Chairman, tax reform remains a top priority for Senator Wyden. He plans to build on the significant work of his predecessor, former Chairman Max Baucus (D-MT), House Ways and Means Committee Chairman Dave Camp (R-MI), and others. (For more information, visit our Tax Reform Resources page.) It is likely any updated proposals from Senator Wyden will be an amalgamation of his earlier plans, the work done by others, and updated thinking based on hearings, consultations, and stakeholder input. Until he releases an updated plan, however, the tax reform measures that Senator Wyden has previously introduced provide the best insights into how he may approach tax reform as Chairman. This document discusses some of the key policies included in those earlier efforts.
1. A Broad Scope for Reform and a Flexible Commitment to Deficit Reduction
There is much debate about the appropriate scope of tax reform. The Obama Administration believes that tax reform should address only business taxes, while Chairman Camp thinks that tax reform should be comprehensive, considering both business and individual taxes. Senator Wyden seems to favor the comprehensive approach. The four tax reform bills Senator Wyden has introduced address both corporate and individual tax policy.
Another fundamental question is whether tax reform should reduce the deficit. Senator Wyden has made comments consistent with the typical Democratic view that tax reform should result in deficit reduction, though his more recent tax reform proposals demonstrate a possible willingness to negotiate with Republicans on this point. When he introduced the first version of his tax reform bill in 2005, Senator Wyden said the bill “makes concrete progress towards deficit reduction,” estimating that the bill would reduce the deficit by $100 billion over five years.  When he introduced the second version of his tax reform bill in 2007, he said that his approach was revenue-neutral, but that it would “allow us to start lowering the federal deficit.” 
2. For Corporations, a Sharp Reduction in the Top Rate
Senator Wyden’s first two tax reform bills retained a top corporate rate of 35%; a lower corporate rate apparently was not a priority. However, when Senator Wyden developed bipartisan bills, first with Senator Judd Gregg (R-NH) and next with Senator Coats, both proposals sharply reduced the top corporate rate to 24%.
3. For Individuals, an Emphasis on Simplicity
In contrast, at 35%, Wyden-Coats does not dramatically cut the top individual rate. It does, however, include a “flatter” rate structure, with three rates compared to the current seven.
Simplicity appears to be an important objective for Senator Wyden. Describing the early versions of his plan, he said that the standard Form 1040 would be one page and would take 15 minutes to complete.  Mr. Wyden’s tax reform proposals would achieve this level of simplification primarily through three steps. First, the proposals would dramatically increase the standard deduction from the current level of $12,400 to $30,000.  Second, the proposals would repeal the individual alternative minimum tax, which, he argues, “could ensnare as many as 100 million taxpayers.”  Third, the proposals repeal many tax preferences.
4. What about Pass-Throughs?
The significant difference in the Wyden-Coats bill between the top individual and top corporate rates would leave pass-through entities—many of our nation’s small businesses—at a tax disadvantage compared to corporations. Partners and S corporation shareholders paying tax at the individual level would pay significantly higher rates on net profits than their corporate counterparts.
The Wyden-Coats bill does not include specific provisions regarding the taxation of pass-through entities other than a requirement for the Treasury Secretary to promptly report to Congress about the advisability of “additional reporting requirements with respect to any pass-through entity” with the goal of reducing tax avoidance.
5. Favorable Treatment for Capital Gains and Dividends, but through an Exclusion
The tax reform proposals signal a significant shift in Senator Wyden’s thinking about the treatment of capital gains and dividends. His first two bills repealed the lower rates for capital gains and dividends, subjecting both to the same tax rate as ordinary income. Senator Wyden’s bipartisan bills with Senators Gregg and Coats restored preferential tax treatment for capital gains and dividends—not through a lower rate, but through a 35% exclusion. Senator Wyden has explained his thinking this way:
If you, for example, had a 35% exclusion from capital gains and you were in a 15% bracket, that would result in an effective capital gains rate of about 9.75%. That same exclusion in a 25% bracket would result in an effective rate of a little over 16%. So you could they say that there would be lower rates for capital gains and ordinary income rates, but you would also say there would be graduated rates so that those who earn most of their income from capital gains would pay higher rates. 
Since Senator Wyden introduced bills with Senators Gregg and Coats, the American Taxpayer Relief Act of 2012 (“ATRA”) made permanent the 2001/2003 capital gains/dividends rate of 15% for individuals with taxable incomes less than $400,000 and joint filers with taxable incomes less than $450,000, and set a 20% rate for filers above those thresholds.  Many now consider the debate over capital gain and dividend rates to be a settled matter; it remains to be seen whether Senator Wyden would favor further changes to the taxation of these types of income.
6. Curtailing, but Not Completely Repealing, Tax Expenditures (Broadening the Base)
From the outset, Senator Wyden has made the curtailment of tax expenditures—“loopholes”—one of his principal tax reform objectives. In addition to provisions making broad structural changes (e.g., depreciation, international rules), the Wyden-Gregg bill includes two broad provisions repealing 21 specific individual and corporate tax preferences, and several other sections repealing or curtailing others. 
Saying that “all tax preferences are not equal,”  Senator Wyden does not propose to eliminate all tax preferences.  He supports the retention of those he believes provide broad and justified benefits, such as the deductions for charitable contributions, state and local tax payments, and mortgage interest. 
A related issue is “tax extenders,” which collectively refers to the dozens of tax policies that expire annually or on a regular basis. Senator Wyden’s tax reform proposals have been silent on which, if any, tax extenders would be made permanent or eliminated. Senator Wyden made tax extenders his first priority as Chairman of the Finance Committee, supporting a plan that would extend them for two years to provide a bridge until Congress is able to undertake comprehensive tax reform, in particular with respect to energy tax extenders.  However, this exercise provided little insight into his long-range plans for the temporary tax provisions.
7. Major Reconsideration of the Treatment of Income from International Operations
Senator Wyden has stated that the current international tax system with deferral and related rules creates “tax breaks for doing business overseas,” which then have to be countered by incentives for domestic manufacturing, including the section 199 deduction and other provisions.  His approach to tax reform is to shift more toward worldwide taxation, in sharp contrast to the House Ways and Means Committee proposal that would be primarily territorial in nature (see our Tax Reform Resources page for more information). Specifically, he has proposed to repeal deferral, reestablish per-country rules for foreign tax credits, and make other changes to the international tax system, arguing that “if the Senate were to [repeal] deferral … it would be possible to dramatically slash rates for all American businesses.” 
Senator Wyden has indicated that he is open to considering alternative approaches. During a 2011 hearing, Senator Wyden said that he and Senator Coats had spent “a gazillion, quadrillion hours” on how to make the U.S. tax system more conducive to U.S. international competitiveness, during which he “kept coming back to all the issues with respect to territorial systems that involve gaming… And I came to the conclusion that competitive rates solve a whole lot of problems.” At the same time, he said that “I am open to continuing to look at a territorial system.”  Senator Wyden has also supported repatriation as part of tax reform; in particular, the Wyden-Coats bill includes a temporary repatriation tax holiday that would impose a 5.25% rate on repatriated foreign earnings.
Additionally, Senator Wyden has recently shown a strong interest in corporate inversions. Generally speaking, inversions occur when a U.S. company is acquired by a foreign company, the owners of the old U.S. company have at least 80% control of the foreign company, and most of the business activity occurs somewhere other than in the country where the foreign parent is organized. Inversions offer the potential for significant tax savings. Senator Wyden has announced that he wants to take some “short-term steps” to combat inversions rather than wait until comprehensive tax reform to address the issue. For example, in an op-ed that appeared in the Wall Street Journal he wrote: “While they may not be breaking U.S. tax laws, many of these companies are navigating a loophole in America’s broken and dysfunctional tax code.... Legal or not, this loophole must be plugged.” For all inversion transactions taking place from May 8, 2014 forward, Senator Wyden would require that the foreign parent own at least 50% (compared to the current 20%) of the inverted corporation. If Congress does not enact legislation to address inversions soon, Senator Wyden’s future tax reform efforts will almost certainly attempt to address this issue.
8. Major Changes in the Tax Treatment of Energy
During his previous tenure as Chairman of the Committee on Energy and Natural Resources, Senator Wyden focused intently on the system of tax incentives for various energy resources. As a general matter, he has criticized the current system as representing “a double standard on energy tax breaks,” where “the oil and gas side gets a permanent tax break, while renewable energy gets a temporary tax break, and often those expire.” We should, he says, “get rid of the double standard.” 
The Wyden-Coats bill would eliminate several tax incentives for oil and gas, including the percentage depletion allowance and the enhanced oil recovery credit. However, the bill dropped some of Mr. Wyden’s previous proposals to repeal tax incentives for oil and gas. 
Senator Wyden also has indicated interest in a shift to a “technology-neutral” approach to energy tax incentives, presumably along the lines of the recent Senate Finance Committee Energy Staff Draft. For example, at a 2011 hearing, he asked how Congress could develop a system that does not create “disparities among technologies even within the renewable sector,” and also asked about criteria that would phase-out energy credits, such as when “an industry reached this place in market share or competitive prices.” 
9. New Initiatives for Savings
Both Wyden-Gregg and Wyden-Coats include major new incentives for savings. The bills consolidate three existing types of IRAs into a new Retirement Savings Account that allows contributions of up to $5,000 per year. The bills also establish a new account (“Lifetime Savings” in the Wyden-Gregg bill and “American Dream” in the Wyden-Coats bill) that allow an additional contribution of up to $2,000 per year. In aggregate, the accounts would allow a married couple to save up to $14,000 per year above 401(k) contributions and also would allow for tax-free withdrawals. Since becoming Chairman, Senator Wyden has spoken on the need to strengthen retirement savings provisions. 
10. The Correct Measuring Stick
The Wyden tax reform proposals also demonstrate an interest in identifying the appropriate “measuring stick” on tax issues—trying to match tax policy to economic reality.
One example is revision of the depreciation system. In an attempt to better match tax policy with economic life, one of the largest revenue-raising provisions found in all of Senator Wyden’s tax reform proposals would raise $569 billion (over ten years) by eliminating accelerated depreciation deductions in excess of those allowed under the alternative depreciation system. An exception would apply for small businesses: the Wyden-Gregg and Wyden-Coats bills allow unlimited expensing under section 179 for businesses with gross receipts of $5 million or less. This approach is less stringent than the depreciation system envisioned under the recent Senate Finance Committee Cost Recovery Staff Draft, though it is possible that Senator Wyden will carefully review feedback to that proposal and incorporate some of its concepts.
Senator Wyden also has proposed to modify the indexing used in the tax code to account for inflation. The Wyden-Coats bill contains two such changes. First, it modifies the tax code’s primary indexing calculation to use “chained CPI,” which is expected to be lower than the CPI currently in use. Second, it proposes to limit corporate interest deductions to reflect inflation (e.g., the deductible amount is reduced by the relevant inflation index).
 151 Cong. Rec. 12,010 (Oct. 27, 2005) (statement of Sen. Wyden).
 153 Cong. Rec. 4,481 (Apr. 16, 2007) (statement of Sen. Wyden).
 153 Cong. Rec. 4,481 (Apr. 16, 2007) (statement of Sen. Wyden).
 For a married couple filing jointly.
 153 Cong. Rec. 4,481 (Apr. 16, 2007) (statement of Sen. Wyden). Note, however, that this statement was made before the “AMT patch” was made permanent by the American Taxpayer Relief Act of 2012, Pub. L. No. 112-240.
 Tax Reform and the Tax Treatment of Capital Gains: Joint Hearing Before H. Comm. on Ways and Means and S. Comm. on Finance, 112th Cong. (Sept. 20, 2012) (statement of Sen. Wyden).
 Pub. L. No. 112-240.
 S. 3018, 111th Cong. (2010), §§ 114, 204. Note that Senator Wyden’s list of tax preferences targeted for repeal has changed over time. The following provisions were proposed for repeal in his first bill, but not in Wyden-Gregg: credit for disabled individuals, deduction for teacher’s expenses, exclusion of workers’ compensation benefits, exclusion of disability damages, exclusion of parsonage allowance, mortgage interest deduction for second homes, deduction for wagering losses, and allowance of LIFO accounting for large integrated oil companies.
 Does the Tax System Support Economic Efficiency, Job Creation and Broad-Based Economic Growth?: Hearing Before the S. Comm. on Finance, 112th Cong. (Mar. 8, 2011) (statement of Sen. Wyden).
 For an example of the “pure” approach, one of the alternatives recommended by the “Simpson-Bowles” National Commission on Fiscal Responsibility and Reform was to eliminate all tax expenditures and use the revenue to lower rates and reduce the deficit. Nat’l Comm’n Fiscal Responsibility and Reform, The Moment of Truth 29 (Dec. 1, 2010).
 151 Cong. Rec. 12,010 (Oct. 27, 2005) (statement of Sen. Wyden).
 See 159 Cong. Rec. 8,992 (Dec. 19, 2013) (statement of Sen. Wyden).
 Tax Reform Options: Incentives for Innovation: Hearing Before the S. Comm. on Finance, 112th Cong. (Sep. 20, 2011) (statement of Sen. Wyden); see Senator Ron Wyden, Remarks on Income Inequality and Taxes, Address Before the University of Southern California, Gould School of Law (Feb. 7, 2014).
 Tax Reform Options: International Issues: Hearing Before the S. Comm. on Finance, 112th Cong. (Sep. 8, 2011) (statement of Sen. Wyden).
 Examining Whether There is a Role for Tax Reform in Comprehensive Deficit Reduction and U.S. Fiscal Policy: Hearing Before the S. Comm. on Finance, 112th Cong. (Sep. 13, 2011) (statement of Sen. Wyden).
 Tax Reform: Impact on U.S. Energy Policy: Hearing Before the S. Comm. on Finance, 112th Cong. (June 12, 2012) (statement of Sen. Wyden).
 Earlier versions would have repealed current law provisions regarding the tax treatment of intangible drilling costs and the use of LIFO accounting for large integrated oil companies.
 Alternative Energy Tax Incentives: The Effect of Short-Term Extensions on Alternative Technology Investment, Domestic Manufacturing, and Jobs: Hearing Before the Subcomm. on Energy, Natural Resources and Infrastructure of the S. Comm. on Finance, 112th Cong. (Dec. 14, 2011) (statement of Sen. Wyden).
 See Senator Ron Wyden, Remarks on Income Inequality and Taxes, Address Before the University of Southern California, Gould School of Law (Feb. 7, 2014).