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Baucus Plans Tax Code Overhaul

June 12, 2012

Senate Finance Committee chairman Max Baucus, D-Mont., is laying out goals for tax reform as the expiration of the current tax rates looms at the end of the year.

In a speech Monday at the Bipartisan Policy Center in Washington, D.C., the head of the Senate committee charged with tax policy talked about the need to rid the Tax Code of tax breaks and tax complexity.

“The need to overhaul the U.S. tax code seems obvious,” he said. “Today, the code is certainly not beautiful.  Instead, it reminds me of Hydra, the mythical Greek beast with hundreds of heads. Each time you cut one off, two more grow back. Like Hydra, our tax code is growing out of control. Since 1986, Congress has made 15,000 changes to the tax code. “

Max Baucus

Baucus pointed to the growing budget deficit and the need to raise revenue. “We need to get our fiscal house in order,” he said.  “America’s deficits and debt are unsustainable. Today the debt-to-GDP ratio is 73 percent, the highest it has been since World War II. Deficits and debt are not just a spending problem.  Revenues as a share of GDP over the past few years are the lowest they have been since World War II.  We simply don’t raise enough revenue. Reasonable people disagree about the timeline. But the reality is we're on a dangerous path.  If we don’t act, it could lead towards fiscal crisis like some European countries. Any tax reform plan must be developed with a sound budget in mind that reduces deficits and debt. But the deficit is not our only hurdle—not by a long shot.”

Republicans and Democrats in Congress disagree about how to deal with the budget deficit, with most Republicans pushing for spending cuts and steadfastly opposing any tax increases, while many Democrats and the Obama administration favor a combination of spending cuts and the reduction of tax breaks, particularly for the wealthy. However, many Republican leaders have acknowledged the need to eliminate tax loopholes. But particular industries usually lobby Congress heavily to preserve any loopholes whenever they are specified. Some congressional leaders are now talking about putting in place a mechanism to speed tax reform through a fast-track process. Baucus said he intends to introduce a tax reform plan of his own, although he declined to provide the specifics.

“Since the last major tax reform in 1986, the world has changed drastically,” he said. “Our tax code hasn’t kept up, and now it’s acting as a brake on our economy when we need to move at full speed. It’s time we had a tax code for the 21st century.”

His goals for tax reform include jobs from broad-based growth, competitiveness, innovation and opportunity. Baucus said that every tax provision needs to prove it has a tangible benefit to the economy or society. "If not, it doesn't belong in the tax code," he added. He pointed to the 132 expiring tax provisions now in the tax code, compared to only 14 after the Tax Reform Act of 1986.

"We need to take a hard look at each and every expiring provision to decide which to make permanent and which to eliminate," said Baucus.

He noted that while other countries have lowered their tax rates to attract businesses and shifted to a territorial tax system to keep companies from moving overseas, the U.S. has not yet done so. Other countries also have tougher rules about shifting profits to tax havens.

Baucus said the tax code needs to foster innovation in fields like high-tech manufacturing, intellectual property, technology research and energy. He also believes that tax breaks for education should focus on those who need the most help.

"Many tax benefits, including for education, currently give the most help to those who already have the most opportunities," he pointed out. "Tax reform should refocus these benefits to help those who started out with fewer opportunities. We should ensure more students get more education."

Comments (4)
We certainly have a tax Complexity problem that needs immediate addressing, but instead we are going full steam ahead trying to impose our tax system and unique citizenship taxation on the entire world in a global FATCA, or GATCA as I call it.

The complexity, cost and additional compliance strains it is adding to an already fragile financial system is fraught with systemic risk, and the IRS is showing no signs of giving more time, or reducing the complexity. Hell, they just released their new 25 page form W-8BEN for FFIs to fill out, and they are just getting started. There is no end in site, unless Bacus is really serious and gets the Senate to plug the plug on FATCA before we see the Fall Out really begin. It is 6 months away!
Posted by Just Me | Tuesday, June 12 2012 at 11:38PM ET
It is going to take a lot more than luck to make any significant impact on the Tax Code. At least this is Baucus last term so what he proposes will not personally impact his re-election. A good place to start would be with the bipartisan Simpson-Bowles Commission report which, among other recommendations, urged Congress to do away with the unique-to-the-US system of world wide taxation and adopt the territorial taxation model of every one of our trade competitors.

Our current system penalizes US competitiveness in the world market and, with FBAR reports, FATCA and all of the dire consequences of being subject simultaneously to two tax systems these are bringing on US citizens living abroad, have made it virtually impossible for US citizens living in another country to survive unless they become citizens of the country where they are living and renounce their US citizenship. Renunciations were up 800% in just one year.

Our 12-month $752 billion merchandise trade deficit and our $8.6 trillion cumulative trade deficit since this double taxation was instituted with a vengeance in 1976, are living testimony to efectiveness in destroying US competetiveness in the world market. In addition the current trade deficit equates to 7.9 million destroyed American productive jobs making exports and some $130 billion in tax revenues these destroyed jobs fail to generate.

Baucus need look no further than Germany to see what removing this ball-and-chain of worldwide taxation can do. Germany's current trade surplus is $226 billion and its unemployment the lowest in 20 years, even though its manufacturing wage levels are 26% higher than ours and it is totally dependent on imported petroleum. The fundamental difference it its territorial tax policy.
Posted by RogerC | Tuesday, June 12 2012 at 10:39AM ET
Because of the unprecedented growth in the federal budget during the last four years, any spending decreases to be benchmarked as of the end of the Bush era.
Posted by ktgcpa | Tuesday, June 12 2012 at 9:24AM ET
"We simply don't raise enough revenue."

Wrong, wrong, wrong. We do not have a revenue problem, we have a spending problem.
Posted by stevecpa66 | Tuesday, June 12 2012 at 8:39AM ET
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