CQ TODAY ONLINE NEWS
Nov. 28, 2011 – 10:43 p.m.
Deficit Panel Gone, but Tax Code Talk Survives
By Sam Goldfarb, CQ Staff
Helped by a long Thanksgiving break, the joint committee on deficit reduction is fast becoming a distant memory, its deliberations — and ultimate collapse — giving way to the next political battle over jump-starting the economy and possible tax cut and unemployment benefit extensions.
Still, the “supercommittee” is not likely to be forgotten completely. As attention turns elsewhere, some lawmakers are sifting through the wreckage of the joint panel to determine whether any of its work can be salvaged.
In particular, lawmakers will undoubtedly take a close look at discussions over the past several months about whether and how to overhaul the tax code. That idea is still sitting on the table, although the timetable and the process for considering it have been altered.
Talk of rewriting the tax system using the expedited procedures and deadlines of the joint committee has been pushed aside. Over the next year, tax writers on the House Ways and Means and Senate Finance committees will work on major tax legislation only if they want to — not because a special panel has forced them into it.
House Ways and Means Chairman
In recent months, the idea of a tax code overhaul has risen to the forefront of political discussions for several reasons.
Led by Camp, Republicans have argued that a simplified tax code, with scaled-back tax breaks and lower rates for individuals and corporations, would be a boon to the economy. In addition, scrapping the current code for a new one has been floated as a possible political compromise.
It is likely that Republicans, in their ideal world, would draw up a tax system that would never be palatable to most Democrats. It would probably reduce taxes for those with high incomes and produce no more revenue than current law does. But Republicans have shown signs they might accept higher tax receipts if the structure of the code were more to their liking.
Largely as a result, recent efforts to reach a deficit reduction agreement focused on a fundamental tax overhaul similar to the one enacted in 1986 (PL 99-514), rather than straightforward tax increases.
That broad concept was advanced by the president’s debt commission last year. It was a major part of a plan offered earlier this year by a bipartisan group of senators known as the “Gang of Six.” And it consumed much of the time and energy of the joint deficit reduction committee, which was charged with finding $1.2 trillion in savings over 10 years.
One proposal from Democrats on the joint panel would have set parameters for a tax overhaul and left it to House and Senate standing committees to figure out the details by a deadline next year.
Notably, though, no bipartisan budget group has produced an actual bill or even a detailed plan that could be thoroughly analyzed by the Joint Committee on Taxation, which measures the budgetary effect of tax legislation for Congress.
Therein lies the challenge for anyone who wants to keep alive the overhaul effort.
Deficit Panel Gone, but Tax Code Talk Survives
Return to Normal Procedures
Whether the momentum has continued to build or has fizzled out should become apparent soon.
There is no question that overhauling the tax code will remain a topic of conversation. As soon as the joint committee announced its inability to cut a deal last week, Camp vowed to “redouble” his efforts “to enact pro-growth tax reform that makes our tax code simpler, fairer and more competitive to generate the economic growth and jobs America needs.”
On Monday, Sen.
Democrats have been quieter on the subject. Baucus did not release a statement about the inability of the joint committee to reach a deal. And a statement from Senate Majority Leader
Shunning talk of a simpler tax system, many Democrats have consistently tried to debate tax policy on more familiar ground. They tend to focus on the tax cuts enacted under Bush (PL 107-16, PL 108-27), which were extended last December (PL 111-312) and are now scheduled to expire at the end of 2012.
Democrats say theirs is a winning political argument: They favor the return of the top two personal income tax rates to pre-2001 levels. Absent action from Congress, those two rates for individuals will automatically rise in 2013 to 39.6 percent and 36 percent from 35 percent and 33 percent.
Making the First Move
After a long period of fairly vague discussions, prospects for a tax overhaul in the next year will almost certainly depend on either Camp, Baucus or the White House — or all three — using the next several months to offer concrete alternatives to the extension or expiration of the Bush-era tax cuts.
For now, however, nobody seems eager to make the first move.
Camp last month offered a detailed discussion draft for changing the tax rules as they apply to multinational corporations. But he has declined to say when he might offer similar blueprints for more controversial pieces of a tax overhaul dealing with individuals and domestic business operations.
Over the past few months, Baucus has held a series of hearings that dealt with politically delicate subjects, including whether to restructure tax incentives for savings and investment. In general, he has expressed interest in creating a more predictable and efficient tax system.
But it is unclear how far Baucus might be willing to go to realize his ambitions, particularly as Democrats try to draw contrasts with Republicans in an election year. More certain is that tax policy in general will be a major topic of the election year debate.
Deficit Panel Gone, but Tax Code Talk Survives
Joseph J. Schatz contributed to this story.