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Tax Reform Moving Ahead Even As Congress Grapples with Sequestration

Posted in Budget, Congress, Tax Policy

By Joe Dowley

Joe Dowley served as Chief Counsel of the Committee on Ways & Means, U.S. House of Representatives when Congress last undertook fundamental tax reform.

Skeptics are questioning whether comprehensive tax reform can happen in 2013 given the concern that Congress may use revenues needed for tax reform to avoid the so-called “sequester” cuts now set to occur on March 1st. The notion is that closing “loopholes” and adopting other measures now to avoid sequestration eliminates their use in a larger reform package later, dampening prospects. Some experts say not to worry – there are plenty of revenue-raising options to go around. Even if that is true, others aren’t so sure that Congress has much of an appetite for passing more than the bare minimum when it comes to tax increases.

In spite of such concerns, Ways & Means Chairman Dave Camp (R-MI) has just organized eleven bipartisan working groups within his committee to begin the process of considering fundamental tax reform. What follows is a summary of developments on the eve of Congress’ President’s Day Recess:

Sequestration: To avoid the impending sequester the President has suggested that Congress take a “balanced approach”: adopt an equal amount of spending reductions and revenue increases, but in total just enough to provide sufficient time for Congress to pass a budget and implement longer-term solutions in 2013.  He advocates closing corporate loopholes and asking wealthier taxpayers to contribute some more to the budget reduction effort – on top of the $600 billion recently enacted in the American Taxpayer Relief Act (ATRA).

Senate Democrats have now responded with a specific proposal to be taken up after the recess, which provides equal measures of revenue increases and spending reductions totaling $110 billion – the amount of the March 1st Sequester. It is intended to provide Congress with about 10 months to work out longer-term budget solutions (although it doesn’t address the next ‘crisis’ point: the March 25th expiration of the Continuing Appropriations Resolution that funds the federal government’s operations).

Spending cuts – $55 billion – would come equally from defense cuts that are to be credited now but will not occur until FY 2015, after the planned Afghanistan withdrawal is completed, and from reductions in farm production payments. The lion’s share of an equal amount of new revenues would come from a new minimum tax on adjusted gross incomes in excess of $1 Million – an idea that investor Warren Buffett has endorsed. The balance would come from the denial of tax deductions for certain outsourcing costs for relocating a U.S. business unit to a foreign country, and a new provision making tar sands petroleum subject to taxes that support the federal Oil-Spill Liability Trust Fund.

Republicans have roundly criticized the proposal’s revenue provisions, and it remains to be seen whether it, or something like it, can pass the Senate. House Speaker Boehner, while critical of the proposal, has indicated that at least it provides a basis for some momentum on finding a solution.

Tax Reform: Meanwhile, undaunted, Ways & Means Chairman Dave Camp (R-MI) has organized eleven bipartisan working groups within his committee to begin the process of considering fundamental tax reform.

Last week, the Chairman announced the creation of eleven “bipartisan working groups” to “sort out” the issues the members will face when tax reform legislation is considered. The stated purpose of the groups is to do “fact finding and information gathering about present law, and in the process identify key sticking points and areas of agreement with regard to the issue areas.”

The areas and chairs selected are:

Charitable and Exempt Organizations: Rep. Dave Reichert (R-WA), Rep. John Lewis (D-GA)

Debt, Equity, and Capital: Rep. Kenny Marchant (R-TX), Rep. Jim McDermott (D-WA)

Education and Family Benefits: Rep. Diane Black (R-TN), Rep. Danny Davis (D-IL)

Energy: Rep. Kevin Brady (R-TX), Rep. Mike Thompson (D-CA)

Financial Services: Rep. Adrian Smith (R-NE), Rep. John Larson (D-CT)

Income and Tax Distribution: Rep. Lynn Jenkins (R-KS), Rep. Joe Crowley (D-NY)

International: Rep. Devin Nunes (R-CA), Rep. Earl Blumenauer (D-OR)

Manufacturing: Rep. Jim Gerlach (R-PA), Rep. Linda Sanchez (D-CA)

Pensions and Retirement: Rep. Pat Tiberi (R-OH), Rep. Ron Kind (D-WI)

Real Estate: Rep. Sam Johnson (R-TX), Rep. Bill Pascrell (D-NJ)

Small Business and Passthroughs: Rep. Vern Buchanan (R-FL), Rep. Allyson Schwartz (D-PA)

This development is noteworthy for three reasons. First, it shows that Chairman Camp is continuing to act as though he will take up tax reform in 2013, as he has said he will. Second, it demonstrates the Chairman’s (and Ranking Member Levin’s) respect for the work of the Committee and all of its members regardless of party. Both leaders know that tax measures must arise in the House, and that Ways & Means must have the basic role in developing tax reform legislation. Bringing both sides together in this bipartisan working exercise helps each member gain a measure of commitment to doing the hard work of reform. Third, it provides a clear pathway for the public to provide input to the Committee on what they think the issues are and how they should be resolved.

The working groups have until April 15th to submit reports to the full committee summarizing their findings. Those with views on the subjects outlined are well-advised to take advantage of this working group structure and get engaged in the process. Although the creation of these working groups doesn’t guarantee a tax bill will be produced, it may ultimately prove to be pivotal in the development of tax reform legislation.