But differences remain over how to do that. Republicans say they want to replace sequestration only with cuts to domestic investments such as education and Medicare. Democrats want the replacement to come through an equal mix of responsible spending cuts and revenue generated by closing tax loopholes.
I am willing to meet Republicans halfway and make some compromises when it comes to additional spending reductions. Democrats won’t agree to irresponsible cuts that hurt seniors and families, but we can find responsible savings across the federal budget to get to a fair deal.
Compromise, however, runs both ways. While we scour programs to identify savings, Republicans have to work with us to scour the bloated tax code and close loopholes used by the wealthiest Americans and corporations to replace the other half of sequestration.
The U.S. tax code clearly benefits the wealthy and well-connected. It would be unfair, and unacceptable, to ignore every last loophole and special interest carve-out yet ask seniors and families to bear the burden of deficit reduction alone.
At our first conference meeting, House Budget Committee Chairman Paul Ryan (R-Wis.) said, “If this conference becomes an argument about taxes, we’re not going to get anywhere.” I absolutely agree. A budget conference is not the place to debate comprehensive tax reform. Senate Finance Committee Chairman Max Baucus (D-Mont.) and House Ways and Means Committee Chairman Dave Camp (R-Mich.) have been working hard with their committees on reform plans, and we will have time to debate this critical issue as their work progresses.
But closing a few wasteful loopholes now would not threaten the much larger debate over simplifying the 75,000-page tax code. In fact, doing so would underscore how much more work remains. Anything we do to get a fair deal in this budget conference would be a drop in the ocean compared with an estimated $14 trillion in forgone revenue from tax expenditures over the next 10 years.
Consider two examples of wasteful loopholes that could be ended immediately without risking overall tax reform.
Right now, big corporations can skirt the limits on deductible executive compensation and claim massive tax breaks by paying their CEOs in stock options and bonuses instead of paychecks. Not only is this unfair but it also encourages the sort of reckless, short-term focus on profits that contributed to the financial crisis. Closing this loophole would save as much as $50 billion over 10 years.
Another loophole, known as “check the box,” allows major multinational corporations to hide foreign subsidiaries and profits from the Internal Revenue Service simply by marking a box on their tax forms. The ability to easily create these “disregarded entities” was intended to help U.S. companies reduce their tax filing paperwork. But big U.S. companies put their foreign subsidiaries in this category as part of their efforts to shuttle profits to tax havens such as Bermuda. Closing this loophole would save as much as $80 billion over 10 years.
If we eliminated these two loopholes — totaling less than 1 percent of all federal tax expenditures — and paired that with an equal amount of responsible spending cuts, we could replace more than two full years of sequestration’s cuts to education, research, infrastructure, jobs and the military.
I challenge anyone to explain how closing these loopholes, or others like them, would imperil overall reform of our inefficient tax code. And if we all agree that wasteful loopholes need to be addressed, let’s work together to find a few we can close now to reduce the deficit and prevent the next round of across-the-board cuts.
After the partisanship and dysfunction of recent years, many are skeptical that this budget conference can succeed. But I believe that the vast majority of my colleagues in Congress want to end this cycle of gridlock and crisis. Democrats are ready to make some tough compromises. I know many Republicans are as well.
I am hopeful that we can find a way to meet in the middle and craft the balanced and bipartisan deal the American people deserve. Compromise is never easy but, as we’ve seen these past few months, the alternative is far worse.