Republican primary is battle of tax plans

The Republican presidential primary fight is being dominated by tax policy, a subject increasingly likely to define the general-election battle between President Obama and the GOP nominee.

Every Republican candidate running for the White House has offered proposals to change the tax code, including dramatic overhauls from Rick Perry and Herman Cain that would introduce a flat tax and a new national sales tax, respectively.

{mosads}What the candidates have left out is how difficult it will be to move any tax reform package through Congress.

Any extensive rewrite of the code will mean ending tax breaks favored by powerful lobbying groups, which are already strategizing on how to save their favored provisions.

The White House and Congress would also embark on this effort, in all likelihood, with a weaker economy than in 1986, the last time a substantial tax reform effort was hatched.

That could make it tougher to beat back interest groups lobbying to save tax breaks, and it could also make it harder to win votes from lawmakers worried they could be sealing their electoral doom in 2014.

“In the middle of a lagging economy, do you really want to give a jolt of pain on the argument that the economy will be better down the line?” asked Clint Stretch, managing principal for Deloitte Tax.

The 1986 process took 18 months and looked near death several times, despite the consistent support of President Reagan, who was coming off an election in which he won 49 states.

It is hard to imagine that whoever holds the White House in 2013 will have the mandate and political support of Reagan.

Stretch, who joined Deloitte in 1985, also noted Reagan arguably had better relationships with House Democrats than he did with Senate Republicans, who were in charge of the upper chamber at the time.

The Gipper partnered with Democrats in the House, including Speaker Tip O’Neill (D-Mass.) and Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.), to win reform.

The odds of Obama partnering with House Republican leaders, just judging from the debt-ceiling talks, seem high.

Even if Republicans end up controlling the White House and both chambers of Congress in 2013, they would have to deal with a Senate minority led by current Majority Leader Harry Reid (D-Nev.), or perhaps Sen. Dick Durbin (D-Ill.) or Sen. Charles Schumer (D-N.Y.). That would make it tough to get to 60 votes in the upper chamber without some Democratic support.

That said, tax lobbyists agree there will be a major push for reform in 2013 regardless of who wins the White House.

“I think there’s a growing consensus we need to do tax reform,” says Stretch, who said any effort will require presidential leadership.

In Congress, there are already signs of movement.

House Ways and Means Committee Chairman Dave Camp (R-Mich.) on Wednesday offered a draft proposal for legislation to end most of the taxes corporations pay on income earned abroad. This is an early indication of Camp’s interest in broader reform, something he is likely to tackle if the GOP holds the House in 2012.

Noise from the campaign trail suggests the legislative effort could rival the 1986 fight, which ended up lowering the top income tax rate from 50 percent to 28 and eliminated scores of breaks cluttering the system.

Tax lobbyists said the chances of Congress picking up the mantle before the election are scant.

This would deprive the candidates of the opportunity to pummel each other over the issue during the long 2012 campaign, a debate both parties appear eager to have.

Perry’s optional 20 percent flat tax and Cain’s 9-9-9 plan, which would impose 9 percent sales, income and corporate taxes in place of the current system, are much more dramatic overhauls than the proposal from Romney.

The fact that his challengers are offering more ambitious goals suggests they think being bold on taxes could help them take out Romney. It also suggests the former Massachusetts governor already has his eye on a general election with Obama and does not want independents to see him as a radical conservative on taxes.

Yet even a battle between Romney and Obama would be critical for the future of taxes.

Obama would raise tax rates in individual income over $200,000 and family income over $250,000, while Romney would preserve the Bush rates.

It’s possible Obama will refine his position before the election, most likely by raising taxes only on income above $1 million. Some also expect the president will offer his own corporate tax proposal, where differences between himself and Romney narrow a bit.

In the GOP primary battle, one thing to watch is whether Romney moves at all on the issue of taxes to court conservative support.

The Wall Street Journal gave him a nudge Wednesday, editorializing that Cain and Perry might encourage him to “join the party.”

If he does, it will only raise the stakes for the general-election contest with Obama, whether Romney prevails or not.