Baucus’s not-so-simple plan to simplify the tax code

Washington might be obsessed with the Bush tax cuts. But Max Baucus, chairman of the Senate Finance Committee, which has jurisdiction over the tax code, thinks they’re beside the point. “Today, the code is certainly not beautiful,” he said in a speech at the Bipartisan Policy Center on Monday. “Instead, it reminds me of Hydra, the mythical Greek beast with hundreds of heads. Each time you cut one off, two more grow back.”

Sen. Max Baucus, D-Mont. (Evan Vucci - Associated Press) Baucus plans to offer a major tax overhaul that will address that entire tax code, not just the expiring Bush tax cuts. He remains circumspect about most of the details, but he did suggest that one potential starting point for debate: the temporary tax breaks known as “extenders.”

There are 132 provisions with sunset dates that have been tacked onto the tax code since the 1986 tax overhaul, creating major uncertainty each time they’re up for renewal. “We need to take a hard look at each expiring provision, which to make permanent and which to eliminate,” said Baucus, stressing that each extender must have a proven “tangible benefit” to survive.

In theory, John Boehner and other Republicans would be likely to agree with Baucus’s overall strategy for tax reform, which the Montana Democrat promised would “attract bipartisan support.” Boehner has similarly promised to close wasteful tax loopholes and special-interest tax breaks in exchange for lowering rates. The problem is the definition of an unnecessary expenditure — the tax credit, deduction or other benefit — can be in the eye of the beholder. And the biggest tax expenditures — the mortgage-interest deduction, the tax exclusion for employer health insurance, and the tax benefits for 401(k) plans — are very broad-based, making them unlikely to be targeted as “special-interest loopholes,” as the Center for Budget and Policy Priorities explains.

(CBPP)

But when pressed to offer more specifics, Baucus demurred, emphasizing the need to “build more trust” with his colleagues out of the public view, at least before the 2012 elections. “The questions you asked are questions that have to be put off,” Baucus told one reporter who asked about Nancy Pelosi’s proposal to preserve Bush tax cuts for everyone but millionaires. Congress needed to “avoid divisive votes prior to the election. You don’t want members of the House and Senate locked in,” he explained.

Baucus stressed, however, that in overhauling the tax code, Congress needed to pursue a vision that goes beyond the mechanics of lowering tax rates and eliminating wasteful tax breaks. “I don’t know we should make changes simply for sake of simplicity simply for sake of lowering rates,” he said. Instead, he continued. “Tax reform should focus on results we want — to create jobs, to spark innovation, to expand opportunity, to guarantee competitiveness.”

But at no point did Baucus specify exactly how much revenue should be raised — and forsaken — in order to achieve such goals, which will be the biggest sticking point in the negotiations. What’s more, Democrats and Republicans have very different ideas of what the end result of the tax code should even be. Baucus, for instance, stressed the need “to put research and new technology on a more level playing field...especially in the energy field.” And the tax extenders that aim to do so through clean-energy tax credits are among those that conservative Republicans have opposed. In other words, raising revenues through eliminating tax breaks is harder than it may sound.