July 26 (Bloomberg) -- Max Baucus is in the middle again.
As the Senate Finance Committee chairman tries to build a bipartisan coalition for rewriting the U.S. tax code, he’s being pressured by fellow Democrats to include almost $1 trillion in new revenue and by Republicans to resist.
The competing pressures -- illustrated by dueling statements from Senate leaders yesterday -- complicate the tough task the Montana Democrat has set for himself this year. He wants the Finance panel to agree to limit tax breaks, reduce marginal rates and somehow reach agreement on whether the plan should raise more money for the government.
The dispute over revenue will complicate Baucus’s efforts to persuade committee members in either party to alter longstanding tax breaks when they don’t know the ultimate goal of a code rewrite, said Mel Schwarz, a partner in the national tax office of Grant Thornton LLP in Washington.
“It’s hard to see how they know where the bull’s-eye that they’re aiming for is,” he said. “And that makes for difficult legislation if you don’t know what target you’re trying to hit.”
The political center is a familiar place for Baucus, who represents a state that hasn’t supported a Democratic candidate for president since 1992. He was one of four Democrats -- and the only one on the Finance Committee -- to oppose the party’s budget this year. He has been working closely with Representative Dave Camp, the Republican chairman of the House Ways and Means Committee.
The Democratic budget plan should be the starting place for the committee’s work, said Senator Debbie Stabenow, a Michigan Democrat.
“We’ll just have to work on it and see,” she said. “The majority of the members supported that.”
Fourteen Senate Republicans, including the leadership and the party’s members on the Finance panel, wrote Baucus and top Republican Orrin Hatch a letter yesterday insisting that any overhaul of the tax code be revenue neutral.
“Tax reform should not be used as a pretense for increasing the net tax burden on American families and job creators, particularly in the absence of any serious effort to address long-term spending problems,” they wrote.
Baucus’s approach to the tax code has followed his usual pattern: Keep all options open and negotiate one-on-one with fellow senators of both parties to find a majority.
He and Hatch have asked senators to submit their ideas by today, starting with a blank slate that assumes that almost every tax break is eliminated. Those submissions will be kept private until Dec. 31, 2064.
Baucus has been trying to postpone the fight over revenue, saying he would resolve that with his committee and in eventual negotiations with the Republican-controlled House of Representatives.
Top Senate Democrats pushed back on that strategy yesterday. They said a rewrite of the U.S. tax code should raise significant revenue.
Majority Leader Harry Reid and third-ranking Democrat Charles Schumer of New York told reporters that a starting point for a tax-code revision should be the Senate-passed budget for fiscal 2014, which calls for $975 billion in additional tax revenue over the next decade.
Any overhaul “has to be under the total understanding that this can’t be revenue-neutral,” Reid said. “It can’t be even close to neutral. It has to be a significant tax target.”
The comments by Reid and Schumer reignited the conflict between Democratic leaders and Baucus. Baucus has announced that he isn’t running for re-election in 2014 and will focus the remainder of his Senate career on tax changes.
“We are on the same page,” Baucus told reporters yesterday. “There will be some revenue. This all comes down to compromise.”
Senator Jay Rockefeller, a West Virginia Democrat, said he and other Democrats on the Finance Committee are writing letters to Baucus insisting on revenue increases.
“Frankly, I would rather the tax reform process be delayed for another Congress than pass a bad bill this year that raises inadequate revenue,” he wrote in a publicly released letter.
Senator Bill Nelson, a Florida Democrat, said the dispute over revenue means that any solution would probably have to include issues outside the tax code, such as spending changes that could be part of a broader budget agreement.
John Cornyn of Texas, the Senate’s second-ranking Republican, said the comments by Reid and Schumer emphasize the divide between them and Baucus. Any attempt to insist on tax increases will doom plans to rewrite the code, Cornyn said.
“That kills it,” he said. “We’re not going to do that.”
Other Finance Committee Republicans, including Rob Portman of Ohio and Charles Grassley of Iowa, indicated that they would continue working with Baucus.
“Max Baucus, to his credit, is trying to develop good tax policy apart from what the revenue implications are,” Portman said. “That’s the right way to approach it.”
Portman said he would like Reid and Schumer to give Baucus the freedom to pursue his approach.
“Let’s go through the process of determining what good tax policy is,” Portman said.
Grassley, a former Finance Committee chairman who has had a long working relationship with Baucus, said he was worried that Reid, who controls the Senate floor, may scuttle or undercut a bipartisan agreement.
“I’m willing to sit at the table because I went through the 1986 tax bill and it’s a lot of hard work,” he said. “You negotiate in good faith in the meantime.”
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