By Aaron E. Lorenzo and Marc Heller
Jan. 27 --Proponents of a tax
overhaul may have to settle for a tax tinkering instead in 2014.
promise of a broad rewrite of the U.S. tax code is fading amid the politics of
midterm elections and the sheer challenge of cutting corporate and individual
tax rates while maintaining government revenue.
Add the looming
departure of Sen. Max Baucus (D-Mont.) as chairman of the Senate Finance
Committee, nominated to be U.S. ambassador to China, and prospects for major
tax legislation seem especially dim, tax lobbyists and former congressional
aides told Bloomberg BNA.
In 2014, tax lobbyists and lawmakers said, the
most Congress may accomplish is setting the groundwork for an eventual overhaul
while renewing dozens of tax provisions that expired in December 2013.
“Chances of tax reform are very low now,” said Eric Solomon, principal in EY
LLP's National Tax Department.
On the Finance Committee, the job of
leading on tax legislation will fall to the next chairman, most likely Sen. Ron
Wyden (D-Ore.). Baucus told Bloomberg BNA his work on a tax overhaul is mostly
“There isn't time for that,” Baucus said.
said, he considers the work he and his staff have completed to be a framework
for an eventual deal, similar to their November 2008 white paper on health care
that became a basis for the Affordable Care Act.
“I would like to do
something to give a similar perspective to tax reform,” he said. “That's the
whole point of the discussion drafts.”
Baucus could exit by the end of
January, or soon thereafter, tax lobbyists said, depending on the Senate's
schedule for bringing his nomination to the floor.
The tax effort would receive a boost if House Ways and Means Committee
Chairman Dave Camp (R-Mich.) can pass a bill in the committee or if President
Barack Obama's administration expresses support, either through public comments
from the president or in the administration's budget request for fiscal year
2015, said Marc Gerson, a former majority tax counsel to the Ways and Means
Committee who is vice president of the tax department at Miller Chevalier, a
Washington law firm.
The tax-writing committees' most important work may
be in laying the foundation for when the political climate better supports a
broad tax overhaul, lobbyists told Bloomberg BNA.
“I do think it's
important for folks to really understand that there is groundwork that can be
laid,” said Matthew Beck, a former senior Democratic aide on the Ways and Means
Committee who is now vice president for public affairs at the Glover Park
Group, a lobbying firm in Washington.
Wyden likely taking the top slot, tax lobbyists and policy analysts will be
turning their attention to similarities and differences between his approach to
taxes and that of Camp. Wyden sponsored his own tax overhaul with Sen. Dan
Coats (R-Ind.) in 2011 and, before that, with former Sen. Judd Gregg (R-N.H.).
The focus is also turning to the so-called tax extenders that are more likely
to face action in 2014 than any tax code overhaul.
On a broader rewrite of the tax code, Wyden could choose to wait until
Camp steps aside as chairman after 2014, as Camp must by House Republican term
limits, said Caroline Harris, tax counsel at the U.S. Chamber of Commerce. Rep.
Paul Ryan (R-Wis.) has said he plans to seek the chairmanship, although others
could come forward.
Wyden's previously introduced tax legislation
includes elements that some in the business community like, including a 24
percent corporate tax rate, revenue neutrality and simplicity.
provisions are far less popular in the corporate world, particularly among U.S.
companies with a multinational presence. Among the unpopular provisions is
Wyden's proposal to end deferral on foreign earnings and institute more of a
worldwide tax system. Opponents also dislike that the Wyden bill would
eliminate accelerated depreciation and Section 199 deductions for qualified
Harris called Wyden's language “particularly
punitive to certain industries.”
contrast, proposes a top corporate rate of 25 percent, down from 35 percent in
current law, achieved in large part by eliminating tax deductions and credits.
He hasn't detailed which tax preferences he would consider cutting. The Obama
administration has called for a top corporate rate of 28 percent and
elimination of some corporate tax preferences, without proposing changes to the
individual side of the code.
Where the top tax rate ultimately falls
remains to be seen. Camp may have made his job harder by insisting on a top
rate of 25 percent on both sides of the tax code, which is especially difficult
to achieve without considering changes to big deductions such as those for
mortgage interest and employer-sponsored health insurance, lobbyists and tax
policy analysts said. Baucus wasn't as specific in his proposals, which he
introduced in late 2013.
In an interview with Bloomberg BNA, Wyden
suggested his efforts to revamp the tax code for the first time since the 1986
overhaul have helped him establish a starting point.
thought that the past is something of a prologue, and Judd Gregg and I sat on a
sofa next to each other every week for two years to get that bill,” Wyden said.
“It is the first bipartisan income tax bill for a quarter century, since the
bill in 1986. Sen. Coats picked up where Sen. Gregg left off when he retired.
That gives you some inkling into my thinking.”
How the Finance Committee will approach taxes depends in part on who
comprises the staff, which won't be known until a new chairman takes the seat.
Harris predicted departures from Baucus's committee staff once a tax overhaul
appears stalled for 2014.
Camp, for his part, has signaled a new push on
a comprehensive overhaul. In January, he stepped up his campaign with a video
touting the effort, a news conference call with the International Franchise
Association and a pledge to use an annual House Republican members' retreat to
take his message to fellow lawmakers.
In a brief interview, Camp told
Bloomberg BNA he isn't settling for less than passing a bill in 2014.
“This is the beginning of the year,” Camp said. “My goal right now is to
advance the issue of tax reform, however I can, so I'm not going to suggest an
endgame short of final passage and signature by the president. As you know,
it's step by step here, and you try to move ahead.”
Camp faces hurdles
of his own.
Democrats on the committee haven't endorsed Camp's
proposals, and the ranking Democrat, Rep. Sander Levin (D-Mich.), has told
reporters that after initially reaching across the aisle, Camp turned toward a
Republicans-only strategy of writing a bill that helped kill its chances for
Camp also faces a political climb
within his own party in convincing House Speaker John Boehner (R-Ohio) that a
tax rewrite that lowers rates by eliminating popular tax deductions makes
political sense in a congressional election year, tax lobbyists told Bloomberg
So far, Boehner and House Majority Leader Eric Cantor (R-Va.)
haven't committed to that approach, focusing instead on the troubled rollout of
the Affordable Care Act and other issues as more politically attractive.
“The more the conversation is on health reform, that's not helpful,” Beck
The Ways and Means Committee's internal politics come into play as
well, some lobbyists said; as time goes by, the focus will increasingly turn to
the shuffle for the chairmanship in 2015.
Other stumbling blocks are
grounded in policy. Most lawmakers wholeheartedly support simplifying the tax
code and lowering tax rates--until the specifics of how to do that come into
play, Rep. Tom Reed (R-N.Y.), a Ways and Means member, told Bloomberg BNA.
Particular tax deductions become so entrenched that they aren't politically
easy to remove, Reed said. One of those is the deduction for employer-sponsored
health insurance, the biggest tax expenditure on the individual side of the
code. To eliminate that provision, Reed said, “there would have to be a
Debate about tax deductions
and credits will heat up as Congress deals with the tax extenders. Camp has
said little about them, telling reporters he is more focused on a big picture
tax rewrite. On the Finance Committee, Baucus said, extenders are the only item
left on his tax agenda, and Wyden seems more likely to steer the committee in
that direction whenever he takes the reins, although he has said he would
prefer to address the provisions through a tax overhaul.
are the committee's likely focus, timing remains uncertain.
departing for recess in December 2013, Senate Democrats tried to renew all of
the extenders but Republicans blocked the maneuver. The Finance Committee's
ranking member, Sen. Orrin Hatch (R-Utah), said at the time that they deserved
more scrutiny and that his and Baucus's staffs would work together to craft
Some Republicans would like to scuttle at least
some of the nearly 60 provisions that expired, and there is precedent for
trimming the list. Lawmakers let an ethanol provision go a couple of years ago,
for example, said Donald Marron, director of economic policy initiatives at the
Hatch said he won't just rubber-stamp the expired
“The extender package is a very difficult thing to do, and
I'm going to insist that we cut back rather than just keep all of them,” Hatch
told Bloomberg BNA. “We should do only the ones that we really should do.”
As lawmakers examine the expired provisions, revenue
offsets could complicate the issue of renewing extenders, Solomon said. A
Republican aide to the Ways and Means Committee told Bloomberg BNA there is no
history of paying for extenders, though it is common for lawmakers to demand
that the costs to the government be offset.
Wyden, who has been careful
not to say much about his priorities since the Baucus news broke, has long been
an ardent supporter of provisions that benefit renewable energy sources such as
the $1-per-gallon tax credit for biodiesel producers and the $1.01-per-gallon
credit for cellulosic ethanol, among others.
Days before Obama said he
would send Baucus to China, Wyden said he would prefer that newer energy
sources receive the same tax treatment as older, more traditional energy
sources in a rewrite of U.S. tax laws, but extending the temporary provisions
would again be necessary because House Republicans in particular slowed down
efforts for a tax overhaul.
“If that's the case, I'm not going to let
wind and solar and renewable get clobbered because the extenders expire and all
those investments in the pipeline get sacrificed,” Wyden said.
Pressure from businesses and other outside groups could force
action before the November elections because lawmakers have no major incentives
to push them in the last two months of the year, said the co-director of EY's
tax group, Michael Mundaca.
He and others predicted that Congress would
renew all of them, as has happened frequently in the past.
expect outside the context of tax reform, that's what we would see again,”
Mundaca said. “There is some feeling in Congress that extenders should be
looked at more carefully. Again, I do think that will happen, only in the
context of overall tax reform as opposed to a focus in the current environment
of extending one year back and one year forward of more specific,
individualized attention to the provisions in the extender package.”
To contact the reporters on this story: Aaron E. Lorenzo in
Washington at firstname.lastname@example.org and Marc Heller in Washington at email@example.com
To contact the editor responsible
for this story: Brett Ferguson at firstname.lastname@example.org
To view additional stories from Daily Tax Report register for a free trial now