Tax reformers see hope in budget deal

Congressional tax writers, left reeling after a string of setbacks to tax reform, say ratification of the budget pact could give them new momentum next year.

{mosads}Senate Finance Committee Chairman Max Baucus (D-Mont.) and House Ways and Means Committee Chairman Dave Camp (R-Mich.) have seen their efforts stymied and criticized in recent months.

But the budget deal struck this week includes no new revenue from ending tax breaks, giving them free reign to pursue a full-scale rewrite of the tax code.

“Provisions that were not part of the budget are going to be part of tax reform,” Baucus told The Hill this week. “Oh yeah, it very much helps.”

Plus, the mere fact that House Budget Committee Chairman Paul Ryan (R-Wis.) and Senate Budget Committee Chairwoman Patty Murray (D-Wash.) were able to shake hands on an agreement indicates that the parties could still work together on tough issues.

Tax writers also argue that, by setting top-line spending numbers for the next two years, the deal could shift Congress out of crisis mode and give other meaningful issues time and space to proceed.

“I think it’s one of the quieter victories in all of this,” said Rep. Kevin Brady (Texas), a senior Republican on the Ways and Means panel.

But from the perspective of tax reform, even Brady conceded that the deal’s most important aspect is that “it did no harm.”

Ryan and Murray’s agreement did not, for instance, bridge the divide between Republicans who say they’re finished with tax increases, and Democrats who want close to $1 trillion in new revenue.

Ryan on Sunday said that he was “hopeful” about moving tax reform.

“Watch the Ways and Means Committee in the first quarter of next year,” Ryan said on NBC’s “Meet the Press.” “We’re going to be advancing tax reform legislation, because we think that’s a key ingredient to getting people back to work, to increasing take-home pay and to growing this economy.”

The budget deal could have even made tax reform a certainty by giving tax writers instructions and deadlines for completing an overhaul.

The narrow budget deal likely gives lawmakers and the White House fewer fiscal deadlines over which to negotiate a grand bargain that includes a tax overhaul. Some tax observers say that could make it even harder for Camp and Baucus to achieve the first reform of the tax code since 1986, especially since they’re scheduled to hand over their gavels at the end of next year.

“Tax reform needs something to push it along,” argued Clint Stretch, a former top official at the Joint Committee on Taxation (JCT).

While that opportunity is now lost, lawmakers are still scheduled to grapple with a debt-ceiling increase sometime next year — the same sort of deadline that nearly led President Obama and Speaker John Boehner (R-Ohio) to reach a “grand bargain” in 2011 that could have included tax reform.

But it’s far from a sure thing that Democrats and Republicans would get even that close to a big deficit deal next time around.

“Tax reform doesn’t have the president of the United States on board, like it did in 1986,” Stretch said. “It has two lame duck chairmen. The thing that was an opening was a grand bargain.”

“There was very little hope of this Congress doing tax reform,” added Stretch, who was also a managing principal at Deloitte Tax. “And there’s even less hope now.”

Camp and Baucus are trying desperately to get a toehold for tax reform next year.

Baucus told reporters Friday that he would release “a couple” of tax reform discussion drafts before the Senate leaves next week, with energy and education among the rumored topics.

The Montana Democrat released three drafts last month that generated little support either from business groups, liberal organizations or Senate Republicans.

In fact, the Finance panel chairman — who has said he wants a reformed tax code to raise more revenue — has struggled for much of 2013 to find common ground between Republicans and his own leadership.

“Their agendas and ours are very different when it comes to that. They want additional taxes,” said Sen. John Thune (R-S.D.), a member of GOP leadership and a Finance Committee member. “We start in very different places, and I know they are not going to give up on it.”

Murray, for instance, has said she regrets that some corporate tax breaks weren’t axed in the deal she crafted with Ryan. Democrats have also pointed out that Congressional Budget Office officials have said that closing a few tax breaks wouldn’t imperil tax reform.

On the other side of the Capitol, the outlook for tax reform has darkened in recent weeks.

Camp backtracked from promising a tax reform bill would make it through his committee in 2013 to not even releasing a measure before leaving town.

The Michigan Republican has faced resistance from GOP leaders who want to keep President Obama’s healthcare law front and center, and are hesitant to move forward with a bill that would likely target popular tax breaks.

But Camp has also struggled to piece together a broad overhaul, with Republicans on his panel acknowledging that projections from the JCT weren’t always as optimistic as they had hoped.

Ways and Means committee members also say that, if and when Camp releases a bill next year, they’ll have to work hard to educate the GOP rank and file on the ins and outs of tax reform.
 
“Clearly, it helps a lot,” Rep. Pat Tiberi (R-Ohio), another senior tax writer, said about the budget deal. “It avoids potentially bad things that were going to happen if this didn’t get done.”
 
But asked about if the deal helped bridge the divide between the parties on taxes, Tiberi said: “Not on the issues themselves, no.”