Finance Committee Asks Senators to Start Tax Reform Process

WASHINGTON — The bipartisan leaders of the Senate Finance Committee on Thursday began a legislative push to simplify the tax code, asking all senators to identify tax breaks, deductions and credits that they believe should be spared and giving them until July 26 to produce their “pardon” list.

In effect, Senators Max Baucus of Montana, the committee’s chairman, and Orrin Hatch of Utah, the committee’s ranking Republican, said they would start the process by clearing the tax code of all special breaks. They then told senators who have lamented the complexity of the tax code to offer their ideas.

“To make sure that we clear out all the unproductive provisions and simplify in tax reform, we plan to operate from an assumption that all special provisions are out unless there is clear evidence that they: (1) help grow the economy, (2) make the tax code fairer, or (3) effectively promote other important policy objectives,” the senators told their colleagues. “Today, we write to ask you to formally submit legislative language or detailed proposals for what tax expenditures meet these tests and should be included in a reformed tax code, as well as other provisions that should be added, repealed or reformed as part of tax reform.”

The leaders of both the Finance Committee and the House Ways and Means Committee have promised a robust effort this Congress to overhaul the tax code, but they face long odds. President Obama has expressed only tentative interest.

Senate Democratic leaders have offered little support, and although Republicans say it is a top priority, they have been loath to say which breaks they would sacrifice or curtail.

In concept, a simplified tax code has bipartisan appeal. In practice, the biggest tax breaks — the mortgage interest deduction, employer tax breaks for healthcare benefits, deductions for state and local taxes and deductions for charitable contributions — may prove politically more popular than true tax reform.

“America’s tax code is broken,” the committee’s letter reads. “The last major reform of the tax code was the Tax Reform Act of 1986, which is considered by many as the gold standard for tax reform. However, since then, the economy has changed dramatically and Congress has made more than 15,000 changes to the tax code. The result is a tax base riddled with exclusions, deductions and credits.”

Rather than having senators identify the tax breaks they want to eliminate, Senators Baucus and Hatch decided that it would be politically easier to ask them which breaks should be saved. But they said saving tax breaks come at a cost: Every $2 trillion in individual tax breaks added back to their “blank slate” would raise tax rates 1.3 to 2.2 percentage points. In other words, senators must decide between popular tax breaks and low income tax rates.

Article source: http://www.nytimes.com/2013/06/28/us/politics/finance-committee-asks-senators-to-start-tax-reform-process.html?partner=rss&emc=rss