The prospects for passing a tax-reform package through Congress look even dimmer now after the protracted and bruising debt-ceiling and government-shutdown fights.
There’s nothing stopping House Ways and Means Committee Chairman Dave Camp, R-Mich., from forging ahead on his promise to pass a tax-reform package out of committee by the end of the year. But there’s not much helping him, either.
Indeed, politics continue to intrude on Camp’s well-laid plans. Congress cannot muster the will to pass major legislation such as immigration reform, nor can it pass a budget. Moreover, Republican leadership has always been wary of moving on a tax-reform bill for fear that it will open the party to attacks that it protects the rich, especially if the legislation lowers tax rates in exchange for cutting beloved tax breaks that benefit a large swath of Americans.
There are also substantial differences between the two parties on the goals of tax reform. And there is the question of timing: With fiscal battles dominating the schedule every three to six months, when is the best window to pursue tax legislation?
“Much of the attention of the tax and budget writers between now and December will be consumed by the discussions of a budget deal, which will probably take some time away from tax reform,” says Ken Kies, a tax lobbyist and former Republican tax counsel to Ways and Means during the 1986 tax reform. “However, it would be a mistake to think that [Camp and Senate Finance Committee Chairman Max Baucus, D-Mont.] will not pursue tax reform before their terms expire.”
Aside from the poor politics surrounding tax reform, there remain a myriad of policy issues that divide the two parties. Chief among them is revenue: Camp would like any overhaul of the tax code to not raise any more or less money than the code currently does. Senate Democrats and the White House want additional dollars to come in to fund stimulus-like programs for infrastructure or to pay down the deficit. This major philosophical divide will make it impossible for any tax-reform legislation to advance broadly through Congress without compromise or major policy concessions.
“I personally think that it would be more feasible — and still not a high degree of probability associated with it, but more feasible — if you could detach the business part [of the tax code] in this discussion from the personal,” says Laura D. Tyson, a professor at the University of California (Berkeley) Haas School of Business and a former Clinton economic official. “I think the personal tax-reform discussion — politically there’s just no place to go.”
The lone bright spot for tax reform now is that it offers lawmakers a chance to steer the conversation away from the ongoing budget battles. “One reason that the 1986 tax reform succeeded was that Congress had been in budget battles in 1982 and 1984 over the Reagan budget. It turned out that people were desperate for an alternative agenda,” says Eugene Steuerle, a fellow at the Urban Institute and a Treasury official at the time of the 1986 tax-reform debate.
None of this fazes Camp, who remains optimistic that tax reform is one key way to restart the sluggish economy. “The goal of tax reform is obviously to get back to a growth economy so that we’ll have jobs and wages and prosperity that Americans need to have to really live the American Dream,” Camp recently told National Journal Daily. “So the American Dream is not some remnant of the past, but it’s a vibrant dream for the future as well. That’s the ultimate goal for the committee.”
Camp should know, because he’s been pursuing a tax overhaul for almost three years, similar to the way he aggressively pursued welfare reform in the 1990s. He and Baucus have held three joint hearings on the subject. They’ve toured the country to talk up the idea, visiting small businesses, Silicon Valley behemoths, and blue-chip corporations like 3M.
They’ve even tried to build momentum for tax reform by re-creating some of the tableaux from the 1986 tax-reform act. Their lunches with lawmakers at the Irish Times, a bar near Capitol Hill, were meant to invoke the moment leading up to the 1986 legislation, when then-Senate Finance Committee Chairman Bob Packwood mapped out a plan for a tax overhaul over beers at that very same bar.
Yet, even this close attention to optics and bipartisan cooperation cannot change the tough political calculus. A huge part of Camp’s challenge is to get House Democrats to support the legislation so that it does not simply look like a Republican-only effort. So far, Democrats on the Ways and Means Committee have not participated in any recent closed-door discussions to craft legislation, according to a Democratic committee aide.
At a committee meeting in late July, Camp faced skepticism from the Democrats. After he read a written statement about the status of tax reform at the meeting of lawmakers and aides, he took a number of pointed questions from Democrats who wanted to know how Camp planned to reduce the top tax rate to 25 percent without losing money, according to an aide present at the meeting.
The conversation did not bode well for getting Democrats to sign onto whatever Camp releases this fall. “I don’t see how the Republicans think they’ll enact tax reform without serious engagement from Democrats,” says a Democratic aide, who requested anonymity to speak freely.
In this partisan environment, it’s difficult to ask any lawmaker to take tough votes that would alter the way Americans pay taxes — especially if the legislation targeted popular tax breaks such as the deductions for mortgage interest, state and local taxes, or charitable contributions. Yet these remain some of the costliest breaks on the books, according to data from the Joint Committee on Taxation.
“Who are the winners from tax reform? Are they sympathetic?” asked former Treasury and White House official Tony Fratto at a recent panel discussion. “Are they going to mobilize support in the country for votes? I don’t think so — there aren’t enough of them.”
Even if Camp musters the will to release a tax-reform package and pass it out of committee by the end of 2013, there’s no guarantee that the public will rally around it. Polling consistently shows that Americans put the economy and job creation as their first priorities for the federal government, followed increasingly by reducing the deficit, according to data from the Pew Research Center.
Even when Americans do think about changing the tax code, there is little consensus on the right way forward. According to a Pew study from the spring of 2013, 72 percent of Americans would like to change the tax code — but they can’t agree at all on the best method.
Just 11 percent complained that they pay too much in taxes, the study found. Yet about 57 percent were dissatisfied with what they called the system’s unfairness, or the idea that wealthy people get away with not paying their fair share in taxes. And while a major selling point in Camp’s pitch to the public at large is that the tax code is too complex, just 28 percent of Pew respondents said they were concerned about that.
It’s evident that Americans outside of D.C. overwhelmingly worry about the state of the economy and the deficit — and that those issues trump concerns over the state of the tax code.
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