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Blank Slate Tax Code Becomes Senate Panel Starting Point

The chairman and top Republican on the Senate Finance Committee have a request for their Senate colleagues: Tell us the tax breaks you want to keep.

The “blank-slate” approach to revising the U.S. tax code proposed by Democrat Max Baucus and Republican Orrin Hatch would start the discussion by eliminating all individual and corporate tax breaks, flipping a default setting in which most breaks have continued without question.

The strategy will require lawmakers and companies to defend widely used existing breaks such as the exclusion of employer-provided health insurance and preferential tax rates for capital gains and dividends.

“This blank slate is not, of course, the end product, nor the end of the discussion,” Baucus and Hatch wrote in a letter to colleagues today. “Indeed, we both believe that some existing tax expenditures should be preserved in some form. But the tax code is also littered with preferences for special interests.”

Baucus, a Montana Democrat, and Hatch, a Utah Republican, are leaving major questions unresolved, sidestepping for now the partisan divide over whether a revised tax code should raise additional revenue.

The committee’s approach also will attach a price tag -- in terms of higher tax rates -- to reinstalling tax breaks in the code.

Corporate Breaks

Adding $2 trillion in individual tax breaks over 10 years would raise tax rates by between 1.3 and 2.2 percentage points. Each $200 billion in corporate tax breaks would raise the top rate by 1.5 percentage points.

The Finance Committee didn’t say what the tax rates would be under a zero-break plan, citing the difficulty of estimating such fundamental changes. Changes outside the Joint Committee on Taxation’s list of tax breaks also could be used toward rate reduction, such as limits on the deductibility of business interest.

President Barack Obama’s 2010 fiscal commission suggested a zero-break plan.

Baucus and Hatch are asking senators to submit suggestions by July 26. They haven’t set a time for committee action.

The process in the Senate is running parallel to what is happening in the House.

Representative Dave Camp, chairman of the House Ways and Means Committee, has said his panel will approve a bill this year. He has released drafts of three sections of his plan.

To contact the reporter on this story: Richard Rubin in Washington at rrubin12@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net

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