Congress, K Street in tax reform ‘purgatory’

Lawmakers and lobbyists are starting to feel burnt out by tax reform talks that have been stalled for years, and appear unlikely to bear fruit anytime soon.

Serious tax reform discussions are now into their fifth year. With a presidential race already heating up, many say those talks will likely spill into at least year seven before the tax code can be overhauled.

{mosads}“I start off a confirmed skeptic,” said Senate Minority Whip Dick Durbin (D-Ill.), who was first elected to the House in 1982. “Tax reform has occurred so seldom in the time that I’ve served in the House and the Senate, the stars really have to line up. And the stars aren’t lining up on much around here lately.”

That frustration has found its way to K Street as well, with lobbyists saying they’ll have to remain vigilant over the next two years even with little prospect for success.

“People are stuck, and while it might not be one of Dante’s layers of hell, it’s at least purgatory,” said one former GOP aide and current tax lobbyist.

In the meantime, congressional tax writers are falling back on familiar methods as they try to create a sequel to the 1986 tax reform law, like hearings on well-discussed tax issues and breaking into smaller groups to examine specific parts of the system.

Senate tax writers are convening their working groups even as they acknowledge Democrats and Republicans remain divided over tax reform’s most central issues, and as the partisan rifts in the chamber have undercut even seemingly noncontroversial measures like an anti-sex trafficking proposal.

Finance Chairman Orrin Hatch has said he views those working groups, which the House also used in 2013, as a way to give a jolt to the tax reform process on Capitol Hill. But the Utah Republican, who’s only held the Finance gavel for two months, hasn’t been shy about expressing frustration with tax reform’s sluggish pace.

“I have to admit, I’m getting tired of hearings,” Hatch told reporters on Tuesday, just after Finance discussed the need to simplify the tax code and ahead of a hearing on international provisions.

“We’ve had 30 now, and I’ll say it again. I think we’ve had enough hearings,” Hatch added, insisting that Finance has to “sit down and start doing what has to be done. And we’re going to do that.”

The year started more promisingly for tax reform advocates, with both President Obama and GOP leaders on Capitol Hill maintaining the issue was one of just a handful, along with trade and infrastructure, where there was a chance for bipartisan success over the next two years.

Obama gave those working on tax reform more reason for hope in February, by proposing a 19 percent minimum tax on future global earnings for corporations in his budget. The business community and Republicans both found that rate too high, but applauded the White House for fleshing out their proposals for tax reform.

But Republicans contend that the White House hasn’t made any serious overtures on taxes in the weeks since the budget rollout. “We’re just talking to ourselves,” said Senate Majority Whip John Cornyn (R-Texas).

The Senate’s second-ranking Republican, who’s also on the tax-writing Finance panel, added that he thought the working groups would help the prospects for tax reform – just maybe not anytime soon. “I think all this work is work that needs to be done at some point, anyway,” he said. “So hopefully we can bank that, and then use it at some point.”

For their part, Democrats have noted that potential GOP presidential candidates like Sen. Marco Rubio (R-Fla.) are already rolling out tax reform frameworks, some 20 months before the November 2016 election. 

Nonpartisan analysts have said that the plan from Rubio and Sen. Mike Lee (R-Utah) would add as much as trillions to the federal debt over a decade, and even senior Republicans like Hatch say those sorts of proposals complicate tax reform efforts on Capitol Hill.

More generally, House Ways and Means Chairman Paul Ryan (R-Wis.) has said that the presidential election will push the deadline for tax reform for this Congress up to this summer.

But it’s also true that Democrats and Republicans haven’t been able to bridge the most fundamental of tax reform divides since former Senate Finance Chairman Max Baucus (D-Mont.) and former House Ways and Means Chairman Dave Camp (R-Mich.) started pushing the issue following the 2010 elections.

The two parties, for instance, still don’t see eye-to-eye over whether a tax overhaul should raise new revenue for the Treasury. Republicans have said they’re willing to discuss Obama’s preference of just revamping the tax code for businesses, but have also made it clear they’d prefer to take a more comprehensive approach. 

And the two sides have even expanded their fight over how analysts should score tax bills, with the House GOP implementing new rules this year mandating more “dynamic” scoring that tries to account for economic growth.

On top of that, analysts stress that Washington’s tax reform task is tougher now than it was almost three decades ago, when former President Reagan and a divided Congress enacted the last major rewrite of the tax code. Camp underscored that problem just over a year ago, when he rolled out a tax reform draft that got underwhelming reviews from across the ideological spectrum.

“I think it took two or three years to get the 1986 bill from an idea to legislation. So it takes a while,” said Sen. Rob Portman (R-Ohio), a member of the Finance panel.

“Frankly,” Portman added, “we’ve had a while.”

Sen. Sherrod Brown (D-Ohio), another tax writer, said he was more optimistic about the tax reform working groups, which are supposed to offer recommendations within a few months. But underscoring the challenge the groups face, Brown also insisted that some of the broader goals of tax reform advocates – like lowering the corporate tax rate – felt out of reach. 

“If each working group comes forward with some bipartisan agreement, we have at least some elements of tax reform,” Brown said.

“And that may be the best we can do.”