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Tax Reform: Whimper or Roar?

Volume XIX No. 8: February 21, 2014

UnknownTAXPAYERS FOR COMMON SENSE--In recent years, must-pass legislation moving quickly through Congress was often carrying a fiscal parasite, the special interest-laden extenders package of targeted tax breaks. The 2008 bailout had them. The fiscal cliff deal in December 2012 also carried the extenders package over the top, but only extended them for a year.

So here we go again.

One of the first things out of Senate Finance Committee Chairman Ron Wyden’s (D-OR) mouth after getting the gavel from former Senator, now Ambassador to China, Max Baucus is that he wants to move forward with an extenders package while tackling comprehensive tax reform on a separate track. At least the senior Republican on the committee, Senator Orrin Hatch (R-UT), indicated he was “going to insist that we cut back rather than just keep all of them. We should do only the ones that we really should do.”

The extenders package, which among other provisions includes gravy for Hollywood, NASCAR track owners, and multinational liquor companies, is the opposite of comprehensive tax reform. One of the major goals of tax reform is to eliminate the narrow parochial provisions like those in the extenders package and generate increased revenue to drive down rates or reduce deficits – or both, hopefully. The extenders package is a gimmick. The only reason it has to be renewed is because it would be too expensive, lose too much revenue, to make these provisions permanent.

Sen. Wyden has been a strong advocate of tax reform in the past. For years he has introduced bipartisan tax reform legislation: first with then-Sen. Judd Gregg (R-NH) and currently with Sen. Dan Coats (R-IN). But passing a tax extenders package – especially without substantial pruning – would contradict signals that the new leadership is serious about tax reform. In fact, one of the provisions in the expired extenders package – a tax credit for purchasing electric motorcycles – was saved from being cut last go around by none other than Sen. Wyden.

Thankfully, on the other side of the Capitol there’s movement on comprehensive tax reform. House Ways and Means Committee Chairman Dave Camp (R-MI) has announced that a package will be released next week. We don’t know what is going to be in it, but that’s a start.

Even though it would be a surprising coup to pass comprehensive tax reform in an election year, especially with Chairman Camp term-limited out of his post next year, this legislation can set the tone and the mark for reform in the coming years.

It took a few years to get to the landmark 1986 tax reform, and many times it appeared that the effort was dead. So it is important to both get started and to think big and broad. Sen. Baucus advocated a blank slate approach where every tax provision would have to be justified to stay in the code. They should take the same approach here. In addition, new approaches such as shifting the mortgage interest deduction to a credit or putting a price on carbon to generate revenue and possibly push rates down even further should be considered.

The proof will be in the pudding, but in an email to Ways and Means Committee members, Chairman Camp sounded like he was ready for a fight: “We can choose to have a real discussion about what tax reform can mean for American families and employers or we can choose to cower to special interests and maintain the status quo. Clearly, I choose the former.”

Hear, hear, Mr. Chairman. And we’re ready to fight for a simpler, flatter, fairer tax code. Americans deserve it.

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