The Senate’s top Democratic tax writer advised Monday that Congress should avoid divisive votes on taxing and spending issues that could hem in members, making it harder to hatch a deal after the election to avert dramatic budget cuts and tax hikes scheduled to take effect in January.
The suggestion came as Senate Finance Chairman Max Baucus (D-Mont.) addressed the Bipartisan Policy Center Monday to lay out principles that should undergird efforts to revamp the nation’s tax code, advocating a total review of tax credits and expenditures and elimination of those that are failing to spark growth.
“It is my view …that we should try to avoid divisive votes before the election,” Baucus said of such political maneuvering. “Because I don’t want members of the House and Senate too blocked in. It makes it difficult to maintain trust to do what’s correct.”
Both the House and Senate plan votes later this summer to deal with the expiration of lowered tax rates enacted under President Bush.
The GOP-held House will vote to extend the lower tax rates for all. The Senate will vote to extend them only for middle class taxpayers. Both votes are intended as a political exercise, to lay claim to the tax issue before the November election.
Baucus remarks were highly anticipated, as they marked the first time the powerful committee chairman had publicly laid out his thoughts on how to conduct the first major overhaul of how Americans are taxed since 1986.
However, he offered few specifics, instead offering only broad goals and principles that should guide the effort. More details will come later, staff said.
Baucus also insisted that all options must be on the table — including both new tax revenue and changes to entitlement programs — when it comes to to reaching a post-election deal to lower deficits and deal with what is colloquially known as “taxmageddon,” a combination of scheduled tax increases that will hit virtually every American.
Even as election year rhetoric heats up, Baucus insisted Democrats and Republicans are quietly negotiating behind the scenes to find an agreement to deal with the impending fiscal cliff.
That effort will continue Tuesday, with a closed door bipartisan meeting of the Finance Committee.
Among the topics they will discuss, Baucus said, would be ways to reach a more modest agreement on a series of temporary tax breaks set to soon expire, known as tax extenders.
The goal, he said, would be to use the exercise to build trust for the much larger task of finding agreement on deficit reduction and a broad rewrite of individual and corporate tax code.
“My hope is that when we start to talk among each other, that builds more trust,” he said.
But he expressed wariness about postponing the full impact of the January hit for several months — as Republicans and some Democrats have advocated — arguing the need to avoid the economic impacts of falling off the fiscal cliff could propel action that Congress might later avoid.
“Sequestration is very important and it’s a good point of leverage to get results,” he said specifically of a $1.2 trillion budget cut that includes nearly $600 billion in cuts to defense that Republicans have argued must be set aside. “I’m not saying how it should be resolved but it’s leverage that shouldn’t be given up easily.”
Republicans have also urged eliminating deductions to create a simpler, flatter tax code. But they insist revenues should be entirely put into lower rates. Deficit reduction, they maintain, should come from spending cuts and entitlement reforms alone.
Baucus argued that the tax code today impedes competitiveness, encouraging corporations and individual to seek tax havens overseas, failing to incentivize innovation and injecting uncertainty into the economy due to dozens of tax provisions that regularly face expiration without Congressional action.
“Tax reform is a once-in-a-generation opportunity. We can cement America’s preeminence,” he said. “Tax reform can create jobs. It can spark innovation. It can expand opportunity. It can guarantee our competitiveness. It can put America back on top.”