Kyl Optimistic Republicans, Obama Can Compromise on U.S. Tax Code Overhaul

Republican Senator Jon Kyl said he is optimistic that his party can work with President Barack Obama to find common ground on overhauling the U.S. tax system, including changes to corporate and individual rates.

“The White House and I know Senate Republicans, and I think House Republicans, understand that in the longer run, starting maybe a year or two from now, we are going to have to make some changes to get a more pro-growth tax code,” Kyl said in an interview on Bloomberg Television’s “Political Capital with Al Hunt,” airing this weekend.

Kyl, the party’s chief Senate vote-counter, said the tax code is “too filled with all kinds of subsidies and credits,” and some loopholes could be eliminated. “We could have lower rates, for example, a lower corporate rate that the White House has talked about if we are able to reform our tax code,” he said.

Republicans and Democrats also may be able to agree on spending cuts, he said.

Kyl, of Arizona, said that even though U.S. corporate profits are rising and the Standard & Poor’s 500 Index has gained 58 percent since Obama took office, the president’s administration has been “highly anti-business” over the past two years.

He praised Obama’s choice of William Daley, a JPMorgan Chase & Co. executive and former Commerce secretary, to be White House chief of staff.

“He’s respected in the business community,” Kyl said. “He’s perceived as somebody that appreciates the needs of certainty for business, of less regulation, lower tax rates and so on.”

Same Level of Revenue

On taxes, Kyl said he objects to any changes that would raise more money for government, though he would be open to an overhaul that would keep the same overall level of tax revenue.

“Depending upon whether or not you are able to get good, pro-growth policies substituted for the ones that we have, the inefficient policies we have, that might be a good compromise,” he said.

Obama has said that revamping the nation’s tax system is necessary to deal with the budget deficit and make the tax code fairer. His economic team is analyzing options.

Kyl said lawmakers need to look at changes to corporate and individual rates, as well as those on capital gains, dividends and estates, because the current rates are in effect for only two years.

Republicans and Obama agreed last month on the two-year tax-cut package, which will add $858 billion to the deficit by extending all the Bush-era income tax cuts and other breaks.

‘End of Two Years’

“It would be better to begin thinking about that now, rather than waiting until almost the end of two years,” Kyl said.

Cutting spending is another area where Democrats and Republicans can compromise, Kyl said.

“Everyone recognizes that we can’t afford the kind of spending we’ve been engaged in,” he said. “I suspect that we will be working together a lot this year to find areas, programs that could be cut.”

The U.S. had a $1.3 trillion budget deficit in fiscal year 2010, up from $459 billion in the fiscal year that ended in September 2008, four months before Obama took office.

Republicans gained six Senate seats in the November election to narrow the Democrats’ majority, now 53 to 47, and took control of the House.

“No longer do the Democrats have an absolute control and, therefore, the ability to pretty much dictate what happens,” Kyl said. “If we’re going to get anything done, we’ll have to work together.”

Securing the Border

On immigration, Kyl said major policy changes can’t happen until the U.S. does a better job of securing the southern border with Mexico. Once that happens, lawmakers can work on issues such as a proposal to allow legal status for some people who were brought to the U.S. as children by parents who were illegal immigrants, he said.

“Until people see real progress on securing the border, I don’t think those other things are possible,” he said.

He said it would be “premature” to try to do away with so-called birthright citizenship until lawmakers hear from experts on what is possible.

“Nobody knows whether you can even do this legislatively or whether it would require constitutional amendment,” he said.

Some Republican lawmakers, including many in state legislatures, are challenging the tenet that everyone born within U.S. borders is automatically a citizen. They question whether babies born in the U.S. to illegal immigrants should be granted citizenship.

Health-Care Law

Kyl charged that Obama’s health-care law is creating uncertainty for businesses and hampering the economic recovery. Republicans have vowed to make changes to the legislation enacted last March.

He defended budget cuts in his home state of Arizona that caused the state to stop paying for heart, liver and other transplants on Oct. 1, prompting criticism of Republican Governor Jan Brewer. Two people denied transplant coverage have died.

Kyl said Obama’s health-care overhaul prevents the state from reducing eligibility for Medicaid, the health-care system for the poor. As a result, he said, officials had to cut back on expensive procedures such as transplants.

Under the health-care law, states will lose some federal funds if they reduce Medicaid eligibility. They can eliminate specific benefits, though the law requires a baseline of minimum coverage.

The federal law “will produce rationing,” he said.

To contact the reporter on this story: Catherine Dodge in Washington at cdodge1@bloomberg.net.

To contact the editor responsible for this story: Mark Silva in Washington at msilva34@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.