Tax Reform is Dead Until a New President Is Elected

Tax Reform is Dead Until a New President Is Elected

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The Senate Finance Committee is generally considered to be the most powerful Senate committee. Its jurisdiction covers not only tax policy, but trade and entitlement programs such as Social Security and Medicare as well. Although congressional committees are not as important as they once were, the chair of a committee such as Finance still wields important power and can set the agenda on issues within his or her purview.

Senator Max Baucus (D-MT) has chaired the Finance Committee off and on since 2001, alternating with Senator Chuck Grassley (R-IO) when Republicans controlled the Senate.

Related: Baucus Pushes Plan to Recover $2 Trillion in Corporate Profits

Baucus was among the Senate’s more conservative Democrats, a position necessitated by representing a very “red” state. By temperament, he was one of the more bipartisan senators; that is, he worked closely with the ranking Republican on Finance—lately Senator Orrin Hatch of Utah—and tended to bend over backwards to try to find common ground.

This was most frustrating to his fellow Democrats back in 2009, when health reform was being debated. Baucus has also tended to be more favorable to trade agreements than many in his party, who view “free trade” as injurious to labor unions, a key pillar of the Democratic base. That is, perhaps, the reason he was chosen to be ambassador to China by President Obama. A more protectionist Democrat would have been viewed as potentially hostile to China.

By sending to Beijing one of the most senior Democrats in the Senate and one well-versed on trade issues, Obama was showing respect for the Chinese, who value seniority and experience in those representing the United States.

Replacing Baucus as chair of Finance is one of the most interesting members of the Senate, Ron Wyden of Oregon. He is much more liberal than Baucus and does not have a precarious hold on his seat—Oregon is safely “blue.” But, like Baucus, he has a penchant for bipartisanship, but one that has sometimes backfired.

Related: The 41 Questions Max Baucus Wants to Ask the IRS

Back in 2009, Wyden joined Senator Robert F. Bennett of Utah in a bipartisan health reform plan. It was widely praised, and in an earlier era might well have formed the basis for a bipartisan approach to health reform, combining the best of each party’s thinking on the issue.

Unfortunately, Republicans made a strategic decision not to engage in negotiations with the White House on health reform and to simply oppose the Democratic bill. As a consequence, Senator Bennett was accused of being a traitor to his party by activists in his home state, which has become one of the most red in the nation. In 2010, Republicans in Utah denied him his party’s nomination for the Senate and he retired.

On tax policy as well, Wyden has sought bipartisan approaches to reforming the system. In 2010, he cosponsored a tax reform bill with Senator Judd Gregg, Republican of New Hampshire. Basically, it would close loopholes, reduce rates and simplify the tax system—the standard goals of tax reform.

Senator Gregg did not suffer Senator Bennett’s fate because he had already planned to retire in 2010, which may be the only reason he could afford to work with Wyden. But the indefatigable Wyden nevertheless managed to find a new Republican cosponsor, Senator Dan Coats of Indiana.

Related: A Tax Reform Plan Both Parties Can Like

The Wyden-Coats plan has languished in the Senate, but obviously just got a new lease on life. This has had tax experts digging it out and looking it over for clues to what Wyden may do on tax reform and other pressing tax issues, such as the expiration of many popular tax provisions, popularly called “extenders,” at the end of 2013.

It is a foregone conclusion that these extenders, which include things like the research and development tax credit, will at some point be renewed and made retroactive to the first of the year. But Baucus and the chairman of the House Ways and Means Committee, Dave Camp of Michigan, had hoped to use the extender legislation as a vehicle to move tax reform.

Camp had said that tax reform debate would begin last October and he had released preliminary drafts of legislative language relating to reform of the tax system for small businesses, multinationals, and financial markets. Baucus released a number of option papers last year outlining his thinking on tax reform.

Unfortunately, the government shutdown made it impossible to begin marking up a tax reform bill in Ways and Means and Camp never released a final draft of his complete tax reform legislation. It is still one of the most closely guarded documents in Washington.

Related: Tax Breaks 2014: A $63 Billion Boon to Business

At this point, tax reform is dead for this Congress. Camp missed his window and must give up the chairmanship of Ways and Means at the end of this year, according to House Republican rules. It is assumed that Rep. Paul Ryan of Wisconsin, who currently chairs the Budget Committee, will take over Ways and Means.

Ryan, like Wyden, has his own ideas about tax reform. They may or may not overlap with those of Baucus and Camp, but it doesn’t really matter. What matters is that Ryan and Wyden are the ones who will carry the tax reform ball into the end zone, not Camp and Baucus.

In my opinion, Ryan and Wyden could probably come up with a bipartisan tax reform bill that both are willing to support, that would improve the tax code from both the liberal and conservative point of view. The problem is that the overall political environment is inhospitable to bipartisan approaches to anything. Moreover, President Obama and Treasury Secretary Jack Lew have shown little interest in tax reform.

I don’t see any possibility of tax reform legislation this year. I suspect that Senator Wyden will content himself with holding hearings on the subject and try to build some momentum for his plan that might see action in 2015. One problem is that the Constitution says that tax legislation must originate in the House of Representatives. More than likely, this means that Congressman Ryan will have to make the first move.

More than likely, action on tax reform will not begin in earnest until we are past the 2016 campaign. It’s an issue that both sides think they can benefit from, politically, and, in any case, presidential leadership will be necessary to see it come to fruition.

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