Tax reform gets receptive ear at Simpson, Bowles hearing

“The commission’s plan also increases revenue to 21 percent of GDP by 2022, and over time actually balances the budget,” said Conrad, who endorsed the commission’s final plan and is one of the so-called Gang of Six trying to craft a plan for a long-term budget deficits. “That’s the kind of tax reform we’ll need to adopt. That, along with the spending reductions and the entitlement reforms, are what is required to actually succeed.”

At the Senate Budget Committee hearing, Simpson, Bowles and lawmakers also discussed the value-added tax and what to do to keep a reformed tax code from backsliding. 

The hearing came as tax reform remains part of the discussion over long-term budget deficits and as the idea of overhauling the tax code has been talked about positively by members of both parties in Washington. Still, lawmakers are also skeptical that a tax reform package can be hashed out during the current Congress. 

Bowles, a former White House chief of staff under President Clinton, told the Budget Committee that he did not believe the fiscal commission opposed consumption taxes like the VAT in theory. But both he and Simpson said they were worried by the depth of opposition to the VAT in Congress, especially after the Senate overwhelmingly approved a resolution slamming the tax. 

Simpson, himself a former Republican senator from Wyoming, said that vote made him and others believe they’d just be “ramming our heads into the wall” if they put forward a consumption tax. 

Conrad, meanwhile, said that he “strenuously” pushed for a VAT to be in the deficit panel’s plan, after hearing tax experts of all stripes recommend a hybrid system that used both income and consumption taxes. 

“Not layer one on top of the other in the sense of adding additional revenue as a result, but displacing part of the income tax system so that we could lower rates, especially corporate rates, to help America be more competitive,” Conrad said.

Sens. Ron Wyden (D-Ore.) and Chris Coons (D-Del.) also asked what could be done to prevent tax loopholes and breaks to be put back into the tax code after it was reformed. 

Wyden, a longtime proponent of tax reform, noted that 15,000 new tax breaks had been added to the code since the last successful reform a quarter-century ago. 

For their part, Simpson and Bowles expressed confidence they had put in fail-safes that would help keep the tax code clean. 

“Unless you do something, these things are like the zombies that rise from the grave, because this city is lined with people who make big bucks to go get it back,” Simpson said. “But this time they won’t be bringing home the bacon. The pig is dead.”