Senate Finance Chairman Orrin Hatch has called a hearing on his proposal to overhaul taxation of corporations, the first step needed to shepherd the legislation through Congress.
The hearing next week, announced Tuesday, would examine a proposal the Utah senator has been working on for "corporate integration," a major change in the way corporations are taxed under the current code.
In a statement, Hatch said the plan could "eliminate the distortive double taxation of corporate earnings and further modernize the tax code, including simplification of the system and an end to some of the gamesmanship."
Corporate integration, he also said, would be a step toward the broader tax reform that would lower tax rates that many members of Congress have been working toward, while alleviating the pressures businesses face right now to move their headquarters out of the U.S.
Under the current code, corporate owners are taxed twice: once on the income when it is earned, and again on dividends when they are distributed.
That "double taxation" raises taxes on corporate investment. It also leads to a distortion between corporations and businesses that are structured as "pass-throughs," meaning their owners pay taxes through the individual side of the tax code, paying taxes only once.
Hatch has not spelled out how he would address the distortion, but one possibility would be to allow corporations to deduct the dividends paid out to owners from their taxable income.
One major question would be how to do so without losing revenues for the federal government.
Republicans and Democrats agree that the statutory corporate tax rate, the developed world's highest at 35 percent, needs to be lowered. But they have failed to find agreement on how to do so.