Oregon Senator Wants to Take On the Burden of Fixing the Tax Code

By Jeffrey H. Birnbaum
Monday, July 24, 2006; D01

Sen. Ron Wyden (D-Ore.) has made it his mission to force Congress to rewrite the entire tax code. If he succeeds, every interest in town would take one side or the other in what would be the biggest legislative battle in years.

That is just fine with Wyden. The last full-scale revision of the federal income tax was 20 years ago. Since then, Congress has made about 14,000 tax-law changes, and very few of them are what anyone would call reform. A lot of the loopholes and exceptions that were excised by the Tax Reform Act of 1986 have been essentially restored.

Hence Wyden's effort. He has been making speeches around the country and talking to Washington insiders about the need to clean up the tax code again, for the sake of fairness and simplicity. Not many people bet that he'll succeed. But, then again, almost no one put much faith in the lonely crusade of New Jersey Democrat Bill Bradley when he laid the groundwork for the 1986 act.

"This is the beginning of the long march," Wyden said.

The income tax is where the country's most powerful interests have planted some of their largest and most permanent subsidies. Lobbying groups have fought for years for their own corners of the code and they spend gigantic sums of money every year to keep them where they are. Whether they are drilling write-offs for the oil industry or foreign tax credits for drug companies, there is virtually no major industry or faction in America that isn't committed to protecting a set of highly lucrative tax benefits.

The code has become so cluttered with special privileges, however, reformers like Wyden have been able to attract a growing number of allies, including some important Republicans. One is Sen. Charles E. Grassley (R-Iowa), chairman of the tax-writing Senate Finance Committee. Another is Allan Hubbard, head of the President Bush's National Economic Council.

Grassley and Hubbard agree that a serious assault on the income tax will happen eventually. For one thing, the president wants to take on the fight. For another, Bush has already ordered a set of "reform" proposals, and he isn't likely to allow them to lay fallow forever.

"The president continues to believe very strongly that the current system is broken. It's unfair. It's way too complicated," Hubbard said in an interview. "I am confident that given the right opportunity, it [tax revision] will become a priority for the president."

Tax reform "will have to happen," Grassley agreed. The president wouldn't ask for a comprehensive plan, as he did last year, "and just let it gather dust," he said.

Last November, a presidential advisory panel headed by former senators Connie Mack (R-Fla.) and John Breaux (D-La.) recommended that Congress lower tax rates, reduce paperwork, and pare back or eliminate most tax breaks, including popular deductions for home mortgage interest and employer-provided health insurance.

Wyden's plan would also end many individual tax advantages but, in contrast to the panel's proposal, would keep many of the code's most popular preferences, including the home-mortgage and health-savings deductions. Wyden's Fair Flat Tax Act would lower taxes for millions of middle-income families, in part by raising taxes on some corporations and also on wealthy people with significant investment income -- which the president would likely oppose.

Tax experts think that problems with the alternative minimum tax could force Congress to significantly revise the code before long. Unless that backup tax is altered or terminated quickly, it will increase taxes for about 20 million families a year -- many in the middle and upper-middle income range -- compared with the 1 million super-rich folks who paid it in 2001.

A broad reform effort would be a monumental and perilous undertaking. "Reform" means different things to different people. Grassley, for one, rates the chances of a complete tax overhaul as "very, very difficult." Wyden doesn't disagree.

Still, Wyden is convinced that with diligence he can overcome the odds. "He believes he has all the qualities of Bill Bradley except he doesn't have his jump shot," Hubbard said, referring to Bradley's pre-Senate career as a professional basketball player. (Wyden went to college on a basketball scholarship but never gained much renown.)

These days, Wyden, like Bradley before him, is "moving without the ball," as they say in both men's favorite sport. Wyden is a junior member of the Senate Finance Committee. Yet he is stirring up lots of interest in tax reform among people with more clout than he has. He has proselytized senior lawmakers of both parties and top Bush administration officials, including Josh Bolten, the new White House chief of staff.

Wyden has also solicited advice from veterans of the tax wars of '86, including the man whose Senate seat he now holds: former senator Robert Packwood (R-Ore.), who was chairman of the Finance Committee back then. Wyden has also consulted with Bradley.

"I want to be one of the grunts, to put in the long hours," Wyden said.

Wyden thinks that reducing tax rates and cutting out lots of tax breaks is the best way to spur economic growth. He also thinks that a plan that does both can be balanced in a way that helps middle-income people -- a group in need of a helping hand.

"A lot of corporations are paying little or nothing and they're going to have to pay a bit more," Wyden said. It's past time "to take on the special interests," he added.

Wyden is convinced that 2006 will mark the start of a rethinking of the income tax. If he's right, lobbyists, especially corporate lobbyists, will contest him at every turn. The tax code has become a breeding ground for narrow pleadings from almost every group imaginable.

So, you read it here first. Interest groups get ready!

Jeffrey Birnbaum writes about the intersection of government and business every other Monday. His e-mail address iskstreetconfidential@washpost.com. He will be online to discuss lobbying, lawmaking and tax reform at 1 p.m. today athttp://www.washingtonpost.com.

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