Leaders of the Senate Finance Committee said Thursday they plan to begin developing a proposal for overhauling the nation’s Tax Code.

Senate Finance Committee chairman Max Baucus, D-Mont., and ranking Republican member Orrin Hatch, R-Utah, held a bipartisan meeting with other members of the committee and outlined a series of discussion topics to provide a foundation for comprehensive tax reform.

[IMGCAP(1)]The plans come amid a similar push in the House’s tax-writing Ways and Means Committee, which recently set up a series of working groups to tackle various areas of tax reform. On Tuesday, House Ways and Means Committee chairman Dave Camp, R-Mich., unveiled a “discussion draft” of tax reforms for small businesses based on proposals issued by members of his committee from both parties, after issuing earlier proposals for changes in corporate taxes and financial derivatives taxation (see Ways and Means Committee Chairman Proposes Small Business Tax Reforms).

Camp and Baucus reportedly have been meeting on a weekly basis since the beginning of the congressional term to discuss tax reform. Their committees have also conducted a number of joint hearings in the past year on different areas of reform. This week, House Republicans and Senate Democrats introduced budget blueprints that call for the elimination of tax loopholes, but without specifying them (see Congressional GOP and Democrats Outline Competing Budget and Tax Plans).

“Improving the Tax Code—updating it for the 21st century—can provide America a real shot in the arm,” Baucus said in a statement.  “I hear Montanans saying they want the tax system to be easier to deal with, and they want jobs and the economy back on track. This is an opportunity to do just that. Tax reform can provide families certainty, spark economic growth, create jobs, and make U.S. businesses more competitive. Over the next several months, we will gather as a committee, on a bipartisan basis, to discuss a wide range of options for tax reform. We will collect input and feedback from all members and take on this challenge working together. Tax reform is sure to be a challenge, but one we are ready to take on.”

The Senate Finance Committee has been holding a series of hearings in recent years on reforming the Tax Code and hopes are high that this year could finally be the time before elections further divide the two parties next year. Some of those prior efforts led to permanent changes in areas like the alternative minimum tax and tax rates that were included as part of the last-minute fiscal cliff legislation that Congress passed in January. But lawmakers would like to do a more comprehensive overhaul of the Tax Code similar to the kind during the Reagan administration when Congress approved the Tax Reform Act of 1986.

[IMGCAP(2)]“A lot has changed in the world since the last time our Tax Code was reformed 28 years ago—the introduction of the Internet and cell phones, and the rise of developing economies like China and India,” said Hatch.  “It’s time to reform our tax system to meet the challenges and opportunities of today—not 28 years ago. Reforming America’s burdensome and overly-complex tax code is an absolute imperative to build a strong and robust economy that will grow jobs, increase families take-home pay and help our job creators compete in an increasingly competitive world. By bringing members of the Finance Committee together, we can hopefully move from just talking about tax reform and bring together consensus ideas to bring real reform to bear that American families and businesses rightly deserve.”

The discussion papers planned by the committee members will cover an array of issues from across the Tax Code, including examining the tax treatment of small businesses and corporate investment; families and children; education expenditures; different types of income and tax structures; international taxation; charitable giving and tax-exempt organizations; and many others. The first topic to be discussed at the initial meeting on March 21 will focus on simplifying the Tax Code for families.

The end goal, according to Senators Baucus and Hatch, is a comprehensive tax reform plan—crafted through regular order with input from all members of the committee—that will help businesses create jobs, simplify the system for families, and give the nation a long-term economic boost.

Revenue Neutral Tax Reform Budget Amendment
Separately, another member and former chairman of the Senate Finance Committee, Sen. Charles Grassley, R-Iowa, offered an amendment Thursday to the budget plan offered by Senate Democrats, to make it revenue neutral so tax reform efforts would not be used to raise taxes. On Wednesday, Senate Budget Committee chair Patty Murray, D-Wash., introduced a budget that would cut spending by $975 billion over 10 years, to be paid by $975 billion in new revenue raised by closing unspecified tax loopholes and cutting spending in the Tax Code for “those who need it the least, while locking in tax cuts for the middle class and low-income working families.” Murray’s budget proposal would also use the budget reconciliation process to avoid a Senate filibuster.
Grassley’s amendment, on the other hand, would require that the instructions to the Senate Finance Committee for tax reform be made “revenue neutral .”

“I oppose the reconciliation instruction,” he said in a statement. “By calling on the Finance Committee to find $975 billion in revenues as part of reconciliation, the chairwoman is essentially dooming any tax reform effort to a partisan tax raising exercise.  This is not how you achieve meaningful tax reform. The chairman and ranking member of the Finance Committee recognize this. That is why they have both expressed opposition to a reconciliation instruction for tax reform. While the budget does not call explicitly for tax reform to be part of the reconciliation process, how else do you suppose we are to find nearly a $1 trillion in new tax revenue? Senator [Mike] Enzi [R-Wyo.) has an amendment to strike the reconciliation instruction. I support his amendment.  But, if the reconciliation instruction remains in the mark, it should be revenue neutral. Tax reform should not be used to increase taxes."

"The budget assumes that the nearly $1 trillion in ‘savings’ can be ‘found by eliminating loopholes and cutting unfair and inefficient spending in the Tax Code.’ If such large amounts of low-hanging fruit exist in the Tax Code, you would have thought that either Chairman Baucus or I, when I was Finance Chairman, would have gone after some of this along with the billions of dollars in loopholes we have worked to close," Grassley noted. The truth is the chairwoman’s definition of a loophole is so broad as to be void of any real meaning. And her idea of spending in the tax code is popular deductions widely used by middle-class Americans, such as deductions for mortgage interest, charitable giving, and state taxes.  Referring to these tax increases as ‘savings,’ or as eliminating ‘loopholes’ or ‘spending’ in the Tax Code, does not change the fact that to raise nearly $1 trillion the middle class will see a higher tax bill. Yes, there is clutter in the Tax Code.  There has been a proliferation of tax preferences that should be re-examined. And tax reform, as I understand it, would eliminate certain preferences in an effort to broaden the base, and lower the tax rates. The goal of tax reform is to simplify the Tax Code and make it more efficient. The ultimate goal is economic growth. But, true tax reform should be revenue neutral.  It should not act as a way to increase taxes. Revenue raised by eliminating tax preferences should be used to lower tax rates.”