Political insiders may consider overhauling the tax code a long shot this fall, but special-interest groups and corporations aren’t taking any chances.
Since the beginning of 2013, companies, trade associations, and advocacy groups have hired new representation, ramped up lobbying efforts, and formed new coalitions with such vague-sounding appellations as BUILD, all in the name of preserving the status quo—or at least, groups’ individual tax breaks or provisions. Even coalitions such as ACT that broadly support tax reform advocate for lowering corporate tax rates in exchange for eliminating yet-to-be-determined tax breaks, but that is a tired approach that has so far meant status quo.
The activity reached a crescendo Thursday, when the Senate’s top tax writers announced that all tax breaks, known as tax expenditures, were up for grabs in any hypothetical rewrite of the tax code. Senate Finance Committee Chairman Max Baucus, D-Mont., and ranking member Orrin Hatch, R-Utah, announced that they planned to start their examination of tax expenditures with a “blank slate.” If fellow lawmakers wanted to keep specific breaks, then they would need to justify them, Baucus and Hatch wrote in a letter to their 98 Senate colleagues. House Ways and Means Committee Chairman Dave Camp, R-Mich., also broadly endorsed this approach.
Off the Hill, the reaction was swift. It was a move that caught the attention of K Street and associations worried about losing lucrative breaks. “Any time Congress proposes to eliminate whole swaths of existing laws, you need to take it seriously,” says Rhett Butler of the Association of Gospel Rescue Missions, a network that runs shelters and substance-abuse programs and which benefits from the charitable tax deduction. “The charitable tax incentives play a huge role in how rescue missions operate.”
The tax coalition BUILD, which advocates to keep the interest-deductibility provision alive, argued Thursday that their tax goodie is not technically a tax expenditure and should be spared in the "blank slate" approach. "It's a straightforward business expense," says Ray Keating, chief economist of the Small Business & Entrepreneurship Council and a member of the group.
Part of the problem, which Baucus and Hatch are trying to address, is the unmitigated, unchecked growth of tax expenditures. Such breaks now cost the federal government roughly $1.3 trillion a year, according to the nonpartisan Joint Committee on Taxation. (For context: That’s more than the federal deficit totaled in 2011.) This growth makes them a target, as the two parties look for extra revenue that can be used to either lower tax rates or pay down the deficit.
Popular tax expenditures subsidize the behavior of almost every American’s life. They encourage people to buy homes or donate money to charity. Companies receive the break if they offer health insurance to their employees, or invest in or create green-energy products. Once Congress and the administration approve a tax expenditure, they are notoriously hard to eliminate—hence, the tax writers’ new blank-slate attitude toward them.
The bipartisan deficit commission, Simpson-Bowles, approached tax expenditures in a similar fashion. It found $1.75 trillion in savings in the process, but it also proposed eliminating many breaks dear to Americans, such as the mortgage-interest deduction.
That’s why companies and special-interest groups are reluctant to take the let’s-wait-and-see approach to the tax code in the coming months. “I think everybody is scared to death that their skepticism of tax reform isn’t warranted, and they don’t want to get caught flat-footed,” says one tax lobbyist.
July and August should be hectic months for tax lobbyists and for companies, as they try to keep tabs on the behind-closed-doors machinations of the House and Senate tax committees and as they look for face time with lawmakers and staffers. Just within the last 30 days, 14 new lobbyists for companies--including Genentech, Boston University, AK Steel, and Bond Dealers of America--have filed registration papers to lobby on tax issues, according to Sunlight Foundation data.
New registrations of tax lobbyists and clients spiked in April 2013, with 108 new papers filed. The last time tax-lobbyist registrations increased so much in one month happened in October 2012, right before the fiscal cliff.
During the 112th Congress, groups spent $773 million on tax lobbying, according to the Sunlight Foundation. Forty-six percent of all registered lobbyists worked on at least one tax issue. Longtime observers of lobbying predict that 2013 will be no different
“Taxes are not a new issue for companies. They have been anticipating tax reform for a while,” says Lee Drutman, a senior fellow at the Sunlight Foundation. The only other issue that tops taxes in terms of the number of lobbying clients is the federal budget and appropriations.
Even if a final tax-reform package does not make it to the floor, even drafts or markups, long presumed as dead, can reemerge at unexpected moments. This was the case during the year-end fiscal-cliff battle in 2012, when a Senate Finance Committee bill on tax extenders suddenly ended up in the final package on New Year’s Eve. The House Ways and Means Committee chairman has promised to produce a bill out of committee, which means companies and associations must engage now to keep their tax break out of the congressional paper trail.
Still, money and muscle behind various tax breaks will inevitably complicate the House and Senate’s efforts. “Frankly, the idea of doing tax reform with a blank slate falls right up there with rainbows and unicorns,” Drutman says. “Every tax break has a lobbyist or lawmaker to champion it and support its local interest.”
This article appears in the July 1, 2013, edition of NJ Daily.