McConnell, Republicans Say Tax Overhaul Provides Common Ground

McConnell, Republicans Say Tax Overhaul Provides Common Ground

Senate Minority Leader Mitch McConnell, R-Ky., on Wednesday placed an ambitious overhaul of the tax code at the top of a potential compromise agenda that a new Republican Senate majority could pursue with President Barack Obama.

McConnell, fresh from an electoral victory that makes him the presumed majority leader in the 114th Congress, said he spoke with Obama by phone Wednesday and that they agreed the idea of restructuring the tax code was a prime area for common ground.

“The president said he’s interested in doing tax reform,” McConnell said, adding, “We are too.”

Obama said at his post-election press conference Wednesday that there may be an “opportunity for us to do a tax reform package that is good for business.” But he cautioned that “the devil’s in the details” when addressing the tax code.

Republicans, pointing to high corporate rates and a complex code filled with tax breaks, have been calling for such an overhaul for a couple of years. However, moving anything forward will require cooperation between Democrats and Republicans.

Other senior Republicans, including the likely chairmen of the two committees that would manage the first tax overhaul effort since 1986, have said they expect to move on a sweeping plan and to bring Democrats along. “Every time the House and Senate have been controlled by Republicans, meaningful tax legislation has been passed,” a GOP aide said. “That’s where we’ll put a significant amount of time.”

Sen. Orrin G. Hatch, R-Utah, in line to become the next chairman of the Senate Finance Committee, said in an e-mailed statement the tax code would be a major priority. The GOP agenda, he said, will include “overhauling the tax code and creating a simpler, fairer tax system that promotes savings and investment and puts American job creators at a competitive advantage.”

Retiring House Ways and Means Dave Camp, R-Mich., over the past two years put together a framework for overhauling the tax code but never got the go-ahead from House leaders to move it forward. His most likely replacement, Rep. Paul D. Ryan, R-Wis., has signaled that he will pick up the effort.

“Typically tax reform in history has been led by presidents, ’86 is a perfect example,” he told a financial industry meeting in Washington in September. This time, he said, “It will have to be led by Congress, and we’ll see what we can get.”

House Speaker John A. Boehner, R-Ohio, has suggested he is on board, although he has stopped short of endorsing a full-court press on an effort that could crowd out other legislative initiatives over the next year. Boehner said last week he would unveil a “five-point roadmap” for the GOP in the coming session that “calls for fixing our tax code, solving our spending problem, reforming our legal system, reforming our regulatory system, and improving our education system.”

Cooperation across partisan lines would be crucial to the success of any tax overhaul effort. The Tax Reform Act of 1986 (PL 99-514) was worked out in a bipartisan manner over a couple of years under guidelines set by the Reagan administration’s Treasury Department, and was built to be revenue neutral.

For a new overhaul to work under such principles, both Democrats and Republicans likely would have to set aside bedrock political positions on taxes and put on the table significant tax breaks and provisions cherished by key constituencies. Republicans, for instance, want to lower the top nominal corporate tax rate from 35 percent to 25 percent, but to do so in a revenue neutral fashion they would have to eliminate tax breaks that companies use to reduce their effective tax rates to even lower levels.

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