House Ways and Means Chairman David Camp wants to rewrite the tax code by removing breaks and lowering rates. So do President Obama, Senate Finance Chairman Max Baucus and tax-policy experts across the political spectrum.
Many members of Congress have different agendas. The 112th Congress is less than a month old, and lawmakers in both chambers and of both parties have proposed at least 57 new, extended or expanded tax breaks.
Representative Cliff Stearns, a Florida Republican, proposes making the first $200 of interest earned tax free in 2011 and the first $400 tax free after that. Democratic Representative Joe Baca of California supports a $10,000 tax credit for small fruit-and-vegetable farmers. Republican Senator David Vitter of Louisiana offered a bill to allow a deduction for home-schooling expenses.
Baucus, a Montana Democrat, is proposing tax credits for companies that hire recently discharged military veterans.
“The goal is to get as much as you can before the music stops,” said William Gale, a tax policy expert at the Brookings Institution, a Washington-based group that does research and analysis on U.S. public policy.
Baucus said a proposal that lowers rates and broadens the tax base can still include targeted breaks.
“There are important provisions that do accomplish proper policy,” he said. “So it’s a question of judgment and where you draw the line.”
Stearns said he supports changing the tax code to make it simpler, fairer and more competitive. However, he said in a statement, “I realize that such an overhaul is unlikely in the near term, and so I offer legislation that enhances the current tax code.”
The flurry of early tax bills, most of which are unlikely to become law, demonstrates the challenge facing advocates of a broad overhaul of the tax code.
They must persuade members of Congress to give up what Camp called “a dizzying array of credits, deductions, exclusions and exemptions” that benefit “congressionally blessed industries and activities, both big and small.”
The so-called tax expenditures enshrined in the code cost the government about $1 trillion a year in forgone revenue, almost the same amount generated by the individual income tax, according to Syracuse University professor Leonard Burman.
For Republicans who pledged during the election campaign to cut government spending, the tax code is an attractive way to guide benefits to favored groups.
“If you’re working within the current structure of the code, that’s the way we try to provide incentives and encourage competitiveness,” said Mark Weinberger, a former assistant secretary of the Treasury who is the global vice chair for tax at Ernst & Young LLP.
For example, Missouri Republican Jo Ann Emerson, who chairs the spending subcommittee that oversees the Internal Revenue Service’s budget, wants to give military retirees a refundable tax credit for Medicare premiums. Connecticut Democrat Rosa DeLauro proposed allowing manufacturers to create tax-advantaged accounts for reinvestment.
Gale said many lawmakers proposing targeted tax breaks realize that they won’t be enacted. Instead, he said, they are responding to pressure from constituents and interest groups and doing what they can by filing a bill.
“Everyone is going to bow in the direction of tax reform, because that’s a good thing,” he said. “And how can you be against it? But likewise, it’s a constituent service to introduce a subsidy for that constituent.”
Weinberger said leaders of a tax overhaul will have to encourage lawmakers to buy into the broad economic benefits of the idea, even if it requires sacrificing favored provisions.
“There has to be a trust and belief in a common vision that everybody is going to have a stake in the ultimate outcome of tax reform,” he said.
Even if Congress enacts an overhaul that removes special tax breaks, the experience after the last such overhaul in 1986 shows that provisions return after lobbying campaigns.
Representative Shelley Berkley, a Nevada Democrat, said during a Jan. 20 Ways and Means hearing that advocates for race car tracks and taxis that use propane gas “kind of camped out in my office” as Congress debated extending provisions they had sought last year.
“If we actually lower the tax rate for corporations and companies throughout the United States, is that going to be enough?” she said. “Or are they still going to be coming to me explaining how they still can’t make ends meet, they’re going to go under and they need to have additional tax breaks? Because that’s going to kill us when it comes to our deficit.”
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