Tax reform talk is heating up. Support is growing for bipartisan efforts to rewrite the Tax Code, with committee chairmen and ranking members in both the House and the Senate jumping aboard the effort.
In a bipartisan national tour, Sen. Max Baucus, D-Mont., and Rep. Dave Camp, R-Mich., chairmen of the Senate Finance Committee and the House Committee on Ways and Means, respectively, have been seeking to drum up support for reform. And Tuesday, President Obama offered his own plan for corporate tax reform.
The commonality in the various proposals is to broaden the base and lower the rates. The major hurdle facing legislators is the question of whether reform should be revenue neutral or a revenue raiser. The parties are divided, with Democrats generally supporting raising additional revenue, and Republicans aiming for revenue neutrality. There seems to be an actual impasse, since a reform that doesn’t raise revenue has been labeled a “non-starter” by Sen. Harry Reid, D-Nev., while Sen. Mitch McConnell, R-Ky., takes the opposite position.
Even the President’s plan, which lowers the top corporate tax rate, is seen by opponents as a frivolous suggestion because it includes revenue raisers that the President said would be used to fund a new federal jobs program. And since it applies only to corporations, it leaves unchanged the rates paid by most small businesses.
“Corporate-only rate reduction does not amount to business tax reform,” said Associated Builders and Contractors vice president of federal affairs Geoff Burr. “The President’s plan not only widens the existing gap between Main Street and the Fortune 500, but would actually mean billions of dollars in increased taxes for construction contractors.”
National Federation of Independent Business president and chief executive Dan Danner agreed. “Over 75 percent of all small businesses in the United States are taxed at the individual rate,” he said. “By focusing on corporate-only reform, the President will disadvantage the innovators, the job creators, and the leading pillars of local communities. Any discussion of tax reform must include both corporate and individual rates so that there is a level playing field for businesses of all sizes.”
While not necessarily a barrier to reform, Sen. Baucus’s impending retirement from the Senate adds a sense of urgency in his quest for a legacy. He isn’t running for reelection, and will leave the Senate on Jan. 3, 2015.
It looks as though there may some congressional activity on tax reform in the fall, but the likelihood is that nothing will be completed. And with midterm elections looming in 2014, increasing partisanship may act as a further barrier to comprehensive reform.
When the tax reform rewrite process does begin, it will almost certainly start with a “clean” code without the deductions, credits and exemptions that now litter the landscape. As a consequence, competing proposals are surfacing to keep many of the deductions and credits in place. Nearly every group with a K Street address has issued an opinion on what should be included in a new code.
The final look of a rewritten code will depend on how serious Congress is about the two goals of lower rates and a broader base. It will be up to them to weigh competing interests in deciding how low and how broad to make the code.