Congressional leaders gear up for broad tax reform push

Lawmakers say passage of a major tax deal has increased the chances that Congress will tackle tax reform in 2017.

The $680 billion tax bill approved last week gives hopes for reform a major boost, supporters say, by altering the budget baseline in a way that could make it easier to lower the 35 percent corporate tax rate — one of the highest in the world.

{mosads}Reducing that rate has long been a goal for Republicans, who argue it makes the U.S. less competitive on the global stage. In addition, few corporations actually pay the 35 percent rate because of tax breaks.

The new deal makes locks in a number of expensive tax breaks that could be traded as part of future legislation that lowers the corporate rate. Allowing the breaks to no longer expire makes it easier to lower the rate but not add to the budget deficit.

“The big benefit for tax reform is that by extending these tax provisions permanently, you change the baseline. In other words, you assume there would be relatively less revenue coming in to the [Congressional Budget Office] baseline,” said Sen. Rob Portman (R-Ohio), a member of the Finance Committee.

“This is the big boost for tax reform going forward,” Portman added. “Specifically, I think it makes about a 3-point difference on the business rate, if you want lower the business rate.

The just-passed $680 billion tax package will also help by clearing the tables for the Senate Finance and House Ways and Means committees.

By making several big-ticket tax breaks long-term, the tax-writing panels will be less distracted by the annual or biannual task of putting together a package to extend expiring tax provisions.  

“The things that people focused on before, ‘Just pass my little piece, pass my little piece,’ have pretty much been done or rejected and now we can move forward on the big picture,” said Sen. Charles Schumer (N.Y.), a senior member of the Finance Committee, who is expected to become the Senate Democratic leader in 2017.

“This will set the stage. We’re going to have a lower baseline. We’ll have a better chance to do comprehensive tax reform,” Senate Finance Committee Chairman Orrin Hatch (R-Utah) said.

Hatch said he wants to reduce the overall size of the tax code, a topic that has been popular among Republican presidential candidates in recent years.

“First of all, we’ve got to take a look at the code itself. You’re talking about 70,000 pages and we got to skinny that down to where people can understand it,” Hatch said.

Carly Fiorina, who is running for the GOP presidential nomination, has proposed a three-page tax code.

“If we got rates low enough, we probably could do one page,” Hatch quipped.

The senators central to tax reform negotiations in the next Congress will be Hatch, Schumer, Majority Leader Mitch McConnell (R-Ky.), and Ron Wyden (Ore.), the senior Democrat on the Finance panel.

After being largely sidelines in the negotiations of the highway bill, Wyden played a large role in the talks over this month’s tax extenders package, said a source familiar with the behind-the-scenes action.

On the House side, the prominent players will be Speaker Paul Ryan (R-Wis.), who recently chaired the Ways and Means Committee; now-chairman of that panel Kevin Brady (R-Texas); Democratic Leader Nancy Pelosi (Calif.); and Sandy Levin (Mich.), the senior Democrat on the Ways and Means Committee.

But clinching a deal in 2017 will largely depend on who wins the Oval Office.

Republicans do not want to use revenue from tax reform for new spending, but it’s not clear whether Democratic frontrunner Hillary Clinton would take that approach if she wins election.

“We need to do comprehensive tax reform and what are the conditions under which you can achieve that? I think you have to have a bipartisan agreement that it’s going to be revenue neutral to the government,” McConnell told reporters in his final Capitol Hill press conference of 2015.

McConnell said the second essential principle for him is to treat “all taxpayers as nearly as you can in a similar fashion” and to treat American business similarly.

That means reducing rates for individuals as well as corporations. McConnell noted that most businesses are incorporated as entities that ultimately pay taxes at the individual rate, such as S-corporations or limited liability companies.

Schumer has discussed with Ryan the possibility of moving legislation next year that would reform the tax code for overseas corporate income.

The two had explored the possibility of moving such a package this year and using some of the revenue gained from the repatriation of overseas profits to pay for a multiyear highway bill.

Those talks came to a halt when then Rep. John Boehner (R-Ohio) unexpectedly resigned as Speaker, throwing the House into chaos and prompting a movement to draft Ryan into the chamber’s top leadership spot.

Schumer would like to try again in 2016.

“Paul Ryan and I have had good conversations but he called me the week after he became Speaker and he said it has to wait until next year because I’m busy,” Schumer said. “We’re going to try to do something in 2016 on international tax reform.”

Schumer said he wants to tax the money that corporations are holding overseas and use that money for infrastructure.

“We have an infrastructure bill, but it’s not close to our needs,” he said of the recently passed highway bill.

But McConnell later shot down that idea.

“Whatever revenue produced by eliminating preferences ought to be used to buy down the rates and to make America more competitive,” he said.

He doesn’t want to split off international corporate tax reform from the broader effort to overhaul the code, and he doesn’t see Obama going along with that core GOP principle in his final year of office.

“I would be shocked if the president had an epiphany and decided to join with us and do comprehensive [reform], and I say it must be comprehensive … not just territorial. That’s part of comprehensive,” McConnell told reporters.  

McConnell said the bill that passed last week will help spur comprehensive reform talks.

“The permanency we achieved in the tax relief bill that just passed downstairs is very helpful in adjusting the baseline in a way that will make comprehensive tax reform more possible,” he said.

But he added “it would be very difficult” to get a reform package signed into law by Obama because he would likely insist on diverting revenue for deficit reduction or spending.