It would be nice to think that Sen. Max Baucus (D-Mont.) and Rep. Dave Camp (R-Mich.), the two chairmen responsible for tax-writing in their respective houses of Congress, are correct in seeing an opportunity for tax reform in the wake of the Internal Revenue Service scandal and the embarrassing hearing (for the inquisitors) questioning Apple CEO Tim Cook for complying with the tax code Congress created.
The Hill reports they are talking a good game:
“If Apple isn’t a case for tax reform, I don’t know what else is,” Camp told reporters last week. “Apparently, everything they did was legal. But that means we need to take a look at our tax laws.”
Meanwhile, the IRS controversy shows the need to give it less discretion, Camp said.
“It shows the need for reform,” Baucus said, when asked about the IRS and Apple.
But Baucus and Camp aren’t the problem, nor is there lack of evidence for how inefficient and anti-growth (especially on the corporate tax side) our IRS code is. The issue has and will remain a fight about tax increases. The Republicans feel like they gave at the office in the fiscal cliff deal and can’t politically support another tax hike; the president is determined to get a tax hike as part of a grand bargain for entitlement reform. This gap was momentarily breached in the 2011 budget ceiling negotiations when Speaker of the House John Boehner (R-Ohio) offered $800 billion in revenue through tax reform and enforcement, but the president kicked the deal away. Since then the sides have never been close.
What about doing just corporate tax reform, which both sides say should be revenue-neutral? On CNBC this morning, Rep. Paul Ryan (R-Wis.) explained it’s not doable to lower rates dramatically for corporations while leaving individual rates (including rates for S corporations) high. It won’t fly politically and is bad policy because people will game the system to avoid the individual tax liability.
What about doing tax reform but not addressing entitlement reform? In that trade would the president agree to a revenue-neutral reform that simplifies the code, lowers rates and takes away special favors? Well, it’s a lot of trouble for very little political gain from his perspective. Democrats want tax “reform” in order to raise more revenue as part of their soak-the-rich-and-keep-big-government philosophy. Even from the GOP perspective it’s not clear that tax reform is the political winner it once was.
So are they stuck? I think so, unless the president’s political problems turn to desperation and he wants any deal he can get. (More likely, if things go south for him, he’ll cling to his base even more tightly.)
Unless lawmakers and the White House can get creative with a series of small deals (e.g. allow corporations to repatriate money overseas but take away some tax gimmicks), it is hard to see how a deal gets done. Now, if the Senate flips, that’s another story. And both from a policy standpoint and the perspective of selling the voters on what GOP tax reform would look like, at some point it will be valuable for the GOP House and-or some GOP Senators to put forth their ideal tax reform in some detail. Until, however, the sides give up the fantasy that a bipartisan deal is possible, that won’t happen.