Finance Committee Asks Senators to Start Tax Reform Process

Finance Committee Asks Senators to Start Tax Reform Process

WASHINGTON — The Democratic and Republican leaders of the Senate Finance Committee on Thursday began a legislative push to simplify the tax code by asking all senators to identify what tax breaks, deductions and credits should be kept.

Senator Max Baucus of Montana, the committee’s chairman, and Senator Orrin G. Hatch of Utah, the committee’s ranking Republican, said they wanted to start the process by clearing the tax code of all special breaks. They gave their colleagues until July 26 to produce their so-called pardon list.

“To make sure that we clear out all the unproductive provisions and simplify tax reform, we plan to operate from an assumption that all special provisions are out unless there is clear evidence that they: (1) help grow the economy, (2) make the tax code fairer, or (3) effectively promote other important policy objectives,” the senators told their colleagues. They also asked for proposals for changes to the tax code.

The leaders of both the finance committee and the House Ways and Means Committee have promised a robust effort this Congress to overhaul the tax code, but they face extremely long odds. President Obama has expressed only tentative interest.

Senate Democratic leaders have offered little support, and although Republicans say it is a top priority, they have been loath to say which breaks they would sacrifice or curtail.

In concept, a simplified tax code has bipartisan appeal.

“America’s tax code is broken,” the committee’s letter reads. “The last major reform of the tax code was the Tax Reform Act of 1986, which is considered by many as the gold standard for tax reform. However, since then, the economy has changed dramatically and Congress has made more than 15,000 changes to the tax code. The result is a tax base riddled with exclusions, deductions and credits.”

In practice, the biggest tax breaks — the mortgage interest deduction, employer tax breaks for health care benefits, deductions for state and local taxes and deductions for charitable contributions — may prove politically more popular than true tax reform.

While groups like the Business Roundtable, which represents the chief executives of the nation’s largest corporations, praised the initiative, trade associations representing specific tax breaks immediately jumped to the defense of their causes.

“Our message to lawmakers is the charitable deduction must be included in any sensible tax reform legislation. The charitable deduction is unique in that it requires individuals to give their money away for the benefit of society,” said Sandra Swirski, executive director of the Alliance for Charitable Reform, a group formed to protect the tax deduction for giving.

Rather than having senators identify the tax breaks they want to eliminate, Senator Baucus and Senator Hatch decided that it would be politically easier to ask them which breaks should be saved. But they said saving tax breaks come at a cost: every $2 trillion in individual tax breaks added back to their “blank slate” would raise tax rates 1.3 to 2.2 percentage points. In other words, senators must decide between popular tax breaks and low income tax rates.

Still, some senators blanched at being handed such a responsibility. Usually, committee leaders draft a base bill and submit it to members to amend. Others said they were pleased that after three years of hearings, white papers and small breakout groups hashing over issues in the tax code, a legislative process was beginning.

“It’s a deliberate process that takes the politics out of it,” said Senator Benjamin L. Cardin, Democrat of Maryland and a finance committee member.

Representative Dave Camp of Michigan, the Ways and Means chairman, who has vowed to complete a tax overhaul bill by the end of the year, welcomed Senate movement.

House Republican leaders have reserved the symbolic H.R.1 — the first official bill of the 113th Congress — for a comprehensive tax reform plan, but they have privately expressed concern that Mr. Camp will move forward with a contentious measure, then leave House members politically exposed when the Senate fails to follow.

“This significant step forward underscores that the Senate and House are on the same page as they work in a bicameral, bipartisan manner to fix our broken tax code,” Mr. Camp said in a statement.

, , ,