Budget Conference Offers Narrow Chance For Lawmakers to Advance Tax Code Rewrite

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Oct. 21 --Lawmakers looking to speed an overhaul of the U.S. tax code probably won't find much hope in a forthcoming House-Senate conference on the fiscal 2014 budget, tax lobbyists and analysts told Bloomberg BNA.

As Congress prepares to move past its latest crisis on spending and the debt limit, analysts said taxes are sure to be a part of the discussion as the conference committee looks for ways to bridge gaps between Democratic and Republican approaches to spending.

Unless the two sides can agree on whether to seek greater government revenue--and how to use any additional revenue that a tax overhaul might generate--a breakthrough on revamping the tax code isn't likely, several analysts said. The conference committee must report to Congress by Dec. 13 as part of the deal lawmakers reached to reopen the government and raise the debt ceiling.

On the positive side for a tax overhaul, tax policy analysts said, the budget provides a forum to advance the issue and possibly set up a process such as budget reconciliation that can prevent Senate filibusters or other procedural hurdles and move changes faster. The basic approach to a tax rewrite--reduce top rates, simplify the code and broaden the tax base--is a point of agreement between House Ways and Means Committee Chairman Rep. Dave Camp (R-Mich.) and Senate Finance Committee Chairman Sen. Max Baucus (D-Mont.).

On the other hand, broader issues about revenue divide the parties so deeply that some analysts question whether a budget conference will push a tax overhaul forward. Generally, Democrats seek greater tax revenue to boost programs and reduce the deficit, while Republicans want any additional revenue to come from economic growth that might be achieved through lower tax rates and other policies.

“It certainly provides an opportunity for tax reform, although it's a long shot,” said Robert Bixby, executive director of the Concord Coalition, a fiscal advocacy group. “The real sticking point is what to do with the resulting revenue. That hasn't gone away.”

The failure of past deficit-reduction and spending-related task forces and committees doesn't offer much hope the budget committees can work out partisan differences on revenue and entitlements, a former congressional staff member who still works on tax policy told Bloomberg BNA. “I'm pretty pessimistic.”

Conference Options

The conference committee could map out an expedited process for a tax overhaul, perhaps directing congressional committees to take action by a certain date. It could also offer direction on top tax rates, although some Republican members of the Ways and Means Committee told Bloomberg BNA that specific rates could be left out of any tax overhaul instructions and left to the tax-writing committees to work out later. The House-passed budget envisions a top corporate and individual tax rate of 25 percent, down from a top corporate rate of 35 percent and a top individual rate of 39.6 percent.

The committee could also strike a balance between new revenue from a tax overhaul and savings from changes to entitlement programs, a potential path through the tax and spending stalemate in Congress.

Or, the committee's deliberations might actually slow tax changes in the short run by giving Camp a reason to delay introducing a bill if he is having trouble building support, said John Buckley, a Georgetown University tax law professor and former Ways and Means chief tax counsel for Rep. Charles Rangel (D-N.Y.), once the panel's top Democrat.

“I don't think fast-tracking is the issue here,” Buckley told Bloomberg BNA. “I think votes are the issue.”

Camp has consistently said he intends to introduce a bill in time for a vote in the committee in 2013.

Revenue Challenge

Revenue remains a “tremendous” challenge between the competing budgets offered by House Budget Committee Chairman Rep. Paul Ryan (R-Wis.) and Senate Budget Committee Chairman Sen. Patty Murray (D-Wash.), said Jonathan Traub, former Republican staff director on the House Ways and Means Committee and managing principal for tax policy at Deloitte Tax LLP.

The Republican-led House and Democratic-led Senate are so far apart on revenue, and on the politics behind that issue, that an agreement will be highly challenging, Traub said.

Bixby said he doesn't expect Republicans to agree to use any tax overhaul revenue for debt and deficit reduction unless they receive spending cuts to entitlement programs in return, nor does he expect Democrats to agree to cut spending on entitlements unless they secure tax overhaul revenue for debt and deficit reduction in return.

Such a swap could happen, said Ed Lorenzen, senior adviser at the Committee for a Responsible Federal Budget.

“The political reality of selling some tough choices on entitlements where you're asking people to accept some changes in their benefits is much easier to do if you show it's part of a shared sacrifice somewhere in which tax reform is raising revenues,” Lorenzen told Bloomberg BNA. Camp could hold intact the structure of a revenue-neutral bill to overhaul the tax code and “turn a couple of dials to raise revenue,” he said.

Offers Forum

The conference committee offers a forum to advance significant changes to the tax code--depending in part on the time window the panel examines--Lorenzen said.

“Tax reform could be the key to unlocking and making this budget conference a success,” Lorenzen said.

If the panel only addresses spending for the 2014 federal fiscal year, Lorenzen said, the fiscal crisis cycle would be certain to repeat under that temporary patch scenario. In addition, he said, taxes might only surface on the margins of such a discussion.


To contact the reporters on this story: Marc Heller mheller@bna.com and Aaron E. Lorenzo in Washington at aaron@bna.com

To contact the editor responsible for this story: Cheryl Saenz at csaenz@bna.com