Senate Finance ‘Blank Slate’ Approach to Tax Reform

July 10, 2013

pic-tax-reformOn June 27, Senate Finance Committee Chairman Max Baucus (D-Mont.) and Ranking Member Orrin Hatch (R-Utah) issued a “Dear Colleague” letter to all Senators setting forth next steps as the Finance Committee moves forward with comprehensive tax reform.

In the letter to their senate colleagues, Baucus and Hatch announced they intend to approach tax reform as a “blank slate,” a tax code without the current business and individual tax expenditures that are listed annually by the Joint Committee on Taxation (JCT) staff. They also stated that they “are determined to complete tax reform in this Congress” – that is, by the end of 2014.

Baucus and Hatch specify that Congress has made over 15,000 changes to the code since its last major revision in 1986 with a resulting “tax base riddled with exclusions, deductions, and credits.” Further, they add, the tax code’s complexity, inefficiency, and unfairness are stifling economic growth. As such, Baucus and Hatch underscored their commitment to reforming the code and ask their fellow senators for their “ideas and partnership to get tax reform over the finish line.”

In the letter, both senators note that certain tax expenditures serve important policy objectives and that they both believe that some existing tax expenditures should be preserved in some form. However, the Finance Committee leaders plan to operate from an assumption that all special provisions are out unless there is clear evidence that they:  (1) help grow the economy, (2) make the tax code fairer, or (3) effectively promote other important policy objectives.

Baucus and Hatch do not set target corporate or individual tax rates in their letter, but note that Senators “have different views on whether the revenue raised from eliminating tax expenditures or other reforms should be used to lower rates, reduce the deficit, or some combination of the two,” and states that all senators should understand the trade-offs when adding tax expenditures back to the code.

The letter also asks senators to examine other parts of the code for reform targets. For example, Baucus and Hatch indicate that many income tax provisions are not considered tax expenditures but could be simplified or reformed. In addition, the letter highlights that almost half of federal tax revenue comes from sources other than income taxes and suggests that these provisions should be up for examination, as well.

To that end, they ask senators to submit legislative language or detailed proposals on what expenditures should make the cut and what other provisions should be added, repealed, or reformed by July 26, 2013.

House Ways and Means Committee Chairman Dave Camp (R-Mich.), called the announcement by Finance Committee leaders “welcome news for Americans who deserve a simpler, flatter, fairer tax code that leads to more jobs and higher wages.” For his part, Camp is also committed to moving a comprehensive tax reform bill through his committee this year.

Please click here for NSBA’s proposal on broad tax reform.

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