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Tax Code Overhaul Requires Tradeoffs of Popular Benefits

Lawmakers trying to curtail or end popular tax breaks to pay for lower tax rates will face tough political choices and resistance from taxpayers, advisers to Congress’s top tax writers said today.

Reducing the top individual and corporate tax rates to 25 percent from 35 percent is mathematically possible by removing tax breaks and making other structural changes to the tax base, said George Callas, a tax counsel to Representative Dave Camp, chairman of the House Ways and Means Committee.

“You can’t get there by killing off some renewable energy credits,” said Callas, who spoke at a National Tax Association conference in Washington and said he wasn’t speaking for Camp. “That’s not going to work. You’re going to have to make some very serious tradeoffs.”

House Republicans have called for dropping the top tax rates to 25 percent without specifying how they would do it. Independent analysts have said that they would need to consider limiting benefits for mortgage interest, charitable contributions and health care. Camp, a Michigan Republican, said today that he wants a process to force Congress to overhaul the tax code in 2013.

Any plan that would reduce the top rates to 25 percent would shift the tax burden away from higher-income people, said Jason Furman, deputy director of the White House National Economic Council, who spoke on the same panel.

“Twenty-five is not something that I think is mathematically -- let alone politically or economically -- possible to achieve,” he said.

‘Magic’ 25 Percent

Callas said the 25 percent goal has a “magic” to it that can create a sense of shared sacrifice in which everyone gives up tax breaks.

“The excitement around a certain rate -- and we think that rate is 25 -- causes people to focus less on what they’re giving up and more on what they’re getting,” Callas said.

President Barack Obama has proposed raising the top individual tax rate to 39.6 percent and reducing the top corporate tax rate to 28 percent for many kinds of income and to 25 percent for others.

Lawmakers should approach the tax debate with a “realistic understanding” of what it would take to get rates down to 25 percent, Furman said.

“That type of ambition is great, but it needs to be ambition tempered by analysis as well,” he said.

Any overhaul of the tax code should occur as part of a deficit-reduction effort that includes higher revenue, Furman said. Republicans say a tax overhaul shouldn’t raise taxes.

Deficit ‘Too Large’

“Our deficit on a current policy basis is simply too large to take that stance right now, and revenue and spending both need to be part of a solution,” Furman said.

Without agreement on the levels of revenue and distribution of the tax burden, Congress will have a hard time filling in the details, said Lily Batchelder, chief tax counsel on the Senate Finance Committee.

“It’s really hard for the worker bees to come up with a tax reform plan if that’s not set,” said Batchelder, who said she wasn’t speaking for the committee or its chairman, Max Baucus, a Montana Democrat.

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