House Republicans Consider Testing Tough Politics of Tax Overhaul

House Republicans Consider Testing Tough Politics of Tax Overhaul

As House Ways and Means Chairman Dave Camp gets closer to introducing a major rewrite of the tax code, the question of how the legislation will play politically is looming larger than ever.

The conventional wisdom has long been that a large-scale tax overhaul that scraps the current tax code for one with fewer deductions, credits and exemptions would be too controversial for any party to tackle on its own.

Recent signs that House GOP leaders may insist that Senate Democrats commit to a tax overhaul process in exchange for raising the debt ceiling reflects lingering concerns about the risk of unilateral action.

Although Camp, R-Mich., plans to write a bill and bring it to a committee vote this year, House GOP leaders have yet to promise floor votes on the legislation. Surrounded by Republicans who are eager to press ahead with a tax overhaul, House Majority Leader Eric Cantor of Virginia is a prominent voice behind closed doors urging caution.

Still, extensive discussions among Republicans are under way about how to undertake a far-reaching overhaul of the tax code that would pass not only the House but also the Democrat-controlled Senate and give the House GOP a convincing legislative accomplishment.

Some senior GOP aides are confident that a tax overhaul is just what the Republican Party needs to both energize its base and win over independent voters.

A tax rewrite could offer something for every Republican. In eliminating tax breaks for corporations and high-income earners, it should appeal to moderates who want the party to move in a more populist direction. And by using the resulting revenue to reduce tax rates, it should please conservatives who subscribe to supply-side economics.

Although some House Republican leaders, such as Cantor, want to improve the party brand this Congress by embracing relatively small, “family-friendly” measures, those bills have run into some conservative opposition and received scant public attention.

Compared with other policies, “tax reform is one thing that unites our conference, now more than ever,” said a House GOP leadership aide, speaking on the condition of anonymity.

Going on Offense

GOP aides have been considering how to frame a tax overhaul bill. They say the pain of removing tax breaks would be blunted by the lower rates that households and businesses would get in return.

They also point to the public’s dislike of the current tax code and the appeal of a simplified system.

Camp has pointed to a poll he commissioned showing that Americans dislike the complexity of the tax code. In interviews, Camp talks as much about the time it takes to fill out tax returns as he does about economics. And when he does turn to the economy, he tries to appeal to the large majority of Americans who have jobs by emphasizing the need to lift wages.

With the right messaging, a House GOP tax aide said, a tax overhaul bill could “break the mold” of current political discussions. “If we put together a good bill, Democrats are going to have to react to it,” the aide said. “There’s a huge risk of defending the status quo.”

House Republicans were not always so ready to take political risks in tax policy.

After taking control of the House in 2010, Republicans frequently argued that President Barack Obama should make a tax code rewrite a legislative priority for it to have a chance of moving forward.

Obama’s reluctance to do so may have helped change their calculus. But Republicans were also encouraged to see that Democrats have, to some degree, taken cues from Camp as he has pursued a tax overhaul.

Shortly after the Ways and Means Committee in February split into bipartisan working groups that would study different areas of the tax code, Senate Finance Chairman Max Baucus, D-Mont., announced that his panel would undertake a similar exercise.

And since Camp started releasing tax overhaul “discussion drafts” in the fall of 2011, the Obama administration has embraced some of his proposals.

Cues from History

Growing confidence among Republicans also stems from their reading of history.

The landmark tax bill signed by President Ronald Reagan in 1986 is often held up as evidence that controversial tax legislation must be born in the White House or Treasury Department. But GOP aides are drawing a different lesson from that era: that “comprehensive tax reform,” once fleshed out in detail, can quickly gain a life of its own wherever it originates.

In interviews, two veterans of the 1986 overhaul generally agreed with this interpretation.

“If you can convince the public that you’ve actually achieved something with your reform, then you still will fight all the battles over whether this interest group was fairly attacked or not, or whether this particular break should be cut back the way the other ones were,” said Eugene Steuerle, a former Treasury official who helped write the initial proposal that led to the 1986 law. “You’ll still have all those fights, but you’ll change the burden of proof.”

Republicans still have reasons to be concerned. Democrats’ desire to partially replace deep spending cuts currently in effect with a tax increase makes it more likely that they will savage a bill that does not raise additional revenue.

And some Senate Democrats are ready to pounce on a bill if it even gives the impression of favoring the wealthy over middle-income earners.

Republicans, a Senate Democratic leadership aide said, are willing to eliminate tax breaks “that middle-class families depend on, like the mortgage interest deduction and charitable deduction, so they can cut taxes for the rich.”

“It’s almost mind-boggling that they think this is a winning message,” the aide said.

Camp, who has repeatedly said a tax overhaul should attract bipartisan support, faces a stiff challenge in writing legislation that could interest both parties.

“If it appeals to principles on both sides, then I think coming out with a Ways and Means proposal, it gets a lot further,” Steuerle said. “The proof’s in the pudding.”