An army of lobbyists has been mobilizing in the halls of Congress over recent months in anticipation of what could be a monumental struggle later this year over reforming the tax code.
While the standoff over sequester spending cuts and other budget battles have been grabbing headlines, momentum has quietly been building toward a once-in-a-generation push to overhaul federal taxes, an effort that would likely affect nearly every family and business.
Tax reform edged closer to center stage in recent days after President Obama opened conversations with Republicans over a deal to tackle the federal deficit. A broad rewrite of the tax code could figure in such an agreement, along with cuts in such entitlement programs as Medicare and other changes in federal spending.
The prospect of a tax overhaul has already kicked the capital’s influence industry into high gear. From corporate chiefs and hedge fund lobbyists to Montana ranchers and Broadway producers, the players have already begun their campaigns, pressing for everything from lowering the corporate tax rate to preserving cherished deductions and, in some instances, inserting new tax loopholes into law.
Much of that energy is being directed at a hectic suite of cramped, nondescript offices in the 80-year-old Longworth House Office Building, where eight staffers on the Ways and Means Committee are sifting through possible changes to the nation’s tax code of nearly 4 million words.
Eager to help is a steady stream of lobbyists, like Duane Musser of the National Roofing Contractors Association, who stopped by the offices on a recent Wednesday afternoon to argue his case that commercial roofs should be granted faster depreciation for tax purposes. “Everything is on the table,” he said.
Lobbying over the tax code has more than tripled since Obama took office, disclosure records show. And the pace of activity accelerated toward the end of last year amid the fight over the “fiscal cliff,” as lawmakers from both parties sought to turn the struggle over tax rates into a discussion about overhauling the tax code.
About 440 corporations and business groups spent tens of millions of dollars lobbying Congress and executive branch agencies on tax reform in the third quarter of last year, a Washington Post analysis shows. And that number continued to rise in the final three months of the year, up nearly 10 percent, the analysis shows.
The firms are a who’s who of corporate America, from Apple to Wal-Mart, Boeing to Citigroup. More than 125 Washington lobbying and law firms are engaged in the effort, including those employing high-profile names like former New York City mayor Rudolph W. Giuliani, former U.S. senators Trent Lott and John Breaux, and power lobbyists Tony and Heather Podesta.
“You have the president, the chair of the House Ways and Means Committee, the chair of Senate Finance and other congressional leaders identifying the need for tax reform and starting work on it,” said Matt Miller, vice president for tax and fiscal policy at the Business Roundtable, a group of chief executives that has been extensively lobbying. “That’s what is driving this ramped-up effort.”
Obama called for “bipartisan, comprehensive tax reform” in his State of the Union speech, and House Speaker John A. Boehner (R-Ohio) said recently that overhauling the tax code is one of the highest priorities.
The powerful chairmen of the House Ways and Means Committee and Senate Finance Committee — Rep. Dave Camp (R-Mich.) and Sen. Max Baucus (D-Mont.) — have each vowed to pursue a tax code rewrite this year. Aides to both panels say activity is accelerating, with Ways and Means recently setting up 11 bipartisan working groups to pursue the issue further.
Any number of political obstacles could derail the effort. The parties, for example, differ sharply on what tax reform means: Republicans focus on streamlining the tax code to help businesses compete. Democrats, too, seek simplification, but some also want to raise more tax revenue, partly from the wealthy.
Yet there is general agreement that the tax code’s unwieldy web of deductions and credits should be scaled back and simplified, perhaps dramatically. That would put into play highly popular yet expensive benefits. For individuals, as an example: deductions for mortgage interest and charitable donations. For companies: credits for research costs and provisions that allow firms to defer U.S. taxes on profits earned by foreign subsidiaries.
While companies and business associations account for the vast majority of the lobbying, a variety of other groups such as unions and educational institutions is also involved, disclosure records show, and a wide array of taxes and exemptions is potentially up for grabs.
Indian tribes, for example, are lobbying for changes in tax law, including one that would help them issue tax-exempt bonds to finance economic projects, like marinas and golf courses. About 80 tribal leaders from Michigan, Utah, Wisconsin and other states crowded into a Senate Finance Committee room in early December to present their case to four committee staffers.
“We want to be included and considered in any sort of tax reform,” said Dante Desiderio, executive director of the Native American Finance Officers Association, who attended.
Meanwhile, the Beer Institute, which represents brewers, is pushing to prevent a hike in the excise tax on beer. Although officials at the trade group are not aware of any such proposal, “excise taxes could be put on the table to raise revenue in any comprehensive tax reform deal,” spokesman Chris Thorne said.
“Just the possibility is enough to ensure that we are out there talking to members of Congress and their staffs,” said Thorne, whose institute paid a lobbying firm $50,000 to advocate on tax reform and several other issues in the fourth quarter of last year. “It’s important to prevent that beer drinkers, middle-class Americans, could be seen as an ATM.”
Lobbyists and clients say their advocacy — focused mostly on the tax-writing committees but also congressional leadership and the Treasury Department — is preliminary because there are no comprehensive tax reform bills on the table yet. “There’s nothing to shoot at yet,” one prominent lobbyist said. “You don’t have anything to swing a baseball bat at.”
That will change, the lobbyists say, when the full debate is joined.
The last time Congress set out to overhaul the tax code, aiming to lower rates and closing billions of dollars in loopholes, corporate America reacted with alarm, and a titanic struggle ensued. The final bill was nicknamed the Lobbying Relief Act of 1986.
At the time, The Washington Post described “hordes” of corporate lobbyists roaming Capitol Hill hallways as House Ways and Means Chairman Dan Rostenkowski (D-Ill.) and Senate Finance Chairman Bob Packwood (R-Ore.) hammered out the legislation.
Rep. Bill Frenzel, then a junior Republican member of the Ways and Means Committee, was flooded with 300 requests for appointments every day, compared with half a dozen a week during normal times. “It was a mess,” recalled Frenzel, now a guest scholar at the Brookings Institution. When Congress considered limiting popular deductions for mortgage interest and real estate taxes, he recounted, industry lobbyists “beat us to a pulp.”
This time around, with heightened partisanship and the growth in Washington’s influence industry, many observers expect advocacy on an even greater scale. “It will be immense,’’ Frenzel predicted.
Since 1986, Congress has stuffed the tax code with new breaks — known in Washington as tax “expenditures” — including popular benefits for taxpayers with children, college expenses and retirement savings. These provisions cost the government more than $1 trillion a year in revenue, according to congressional hearings.
Camp and Baucus — who speak frequently across party lines and sat together during the State of the Union address — have both served notice that an overhaul could affect a wide array of tax benefits. “We will need to slay some sacred cows,” Baucus warned in a speech last year.
Lobbying over the tax code increased after Obama’s election in 2008 amid renewed interest in tackling reform and then mounted further after congressional committees began hearings in late 2010, disclosure records show. The volume of lobbying jumped again after Camp released a draft plan in late 2011 for overhauling how multinational companies are taxed, a search of the records showed.
More than 440 businesses and corporate associations spent a total of just over $200 million lobbying on tax reform and a variety of other issues in the third quarter of last year, the Post analysis shows. The records do not specify how much was spent on individual issues, but numerous corporate lobbyists and officials said in interviews that tax reform is a key lobbying priority.
In his proposal, Camp called for lowering the top corporate tax rate from 35 percent to 25 percent and moving to a form of a “territorial” tax system. Currently, U.S. companies pay taxes not only on profits made domestically but also on profits earned overseas and then brought back to the United States. A territorial system would essentially tax only profits earned domestically.
Much of corporate America strongly favors the change, believing it would help businesses compete in the global economy. Many Democrats argue that the approach would encourage U.S. firms to move their operations, and thus jobs, overseas.
“Camp’s draft really focused people’s attention,” one Washington corporate lobbyist said on the condition of anonymity because he did not have his clients’ permission to speak.
As corporations and their lobbyists have swung into action, the schedules of congressional aides have gotten crammed. Staffers on the Ways and Means Committee, for instance, have been holding a succession of meetings with chief executives, officials of trade associations and other advocates, according to a committee aide who spoke on the condition of anonymity because he is not an authorized spokesman. The panel has yet to decide which specific tax provisions it will recommend.
“It’s important for us to hear from stakeholders,” the aide said. “If tax reform is done right, there will be mostly winners, but there is no way everyone wins.”
It is that fear of losing that motivates much of the lobbying, according to corporate officials and advocates. Corporate executives worry about the fate of major tax benefits, such as the research and development tax credit and what is known as accelerated depreciation — allowing firms to deduct purchases of plants or equipment and quickly depreciate those costs to lower their tax bills.
While some corporations “are primarily interested in rate reduction, others . . . don’t want those tax benefits reduced or eliminated,” said Robert J. Leonard, a partner at Akin Gump Strauss Hauer & Feld, Washington’s second-largest lobbying firm. “That’s the challenge of tax reform— it’s all about winners and losers.” Akin Gump alone is lobbying on behalf of at least 18 corporate clients over a possible revision of the tax code.
As the prospect of tax reform has grown closer, corporate PACs and people affiliated with companies have been contributing extensively to key figures on the tax-writing committees. Baucus and Camp and the ranking members of their committees — Sen. Orrin G. Hatch (R-Utah) and Rep. Sander M. Levin (D-Mich.) — accepted a combined $5.6 million in campaign contributions from corporate interests that lobbied on tax reform, according to an analysis of 2012 election cycle data compiled by the nonpartisan Center for Responsive Politics. The four lawmakers also accepted $1 million in contributions directly from lobbyists representing corporate interests that lobbied on tax reform.
In a joint statement, aides to the four lawmakers stressed that “the political contributions do not affect policy decisions and don’t make an ounce of difference” and said the lawmakers’ decisions are influenced only by “the interests of their constituents.”
Some of the heaviest lobbying has come from the oil and gas industry, which has been targeted by Obama and other Democrats for what they consider preferential tax breaks. Those include deductions that effectively lower refiners’ tax rates and decrease the cost of oil and gas exploration.
Stephen Comstock, director of tax and accounting policy at the American Petroleum Institute, a trade group, said some energy executives are worried that tax reform could end up being “political.” He said industry representatives are urging that tax measures be based on good policy.
While energy companies are trying to keep favorable provisions in the code, hedge funds and private-equity companies are trying to keep unfavorable ones out. Lobbyists for these firms have been meeting with members of Congress and staffers to argue against a tax provision on what’s called enterprise value, records show. This would require fund managers who sell a business to pay taxes according to their personal tax rate, which would often be the top-end rate of 39.6 percent, not at the much-lower capital gains tax rate of 20 percent or less.
The provision was contained in a broader measure passed by the House in 2009. The legislation stalled in the Senate, but the provision might yet be revived.
“We’re trying to prevent someone from taking something off the shelf and sticking it into a bill,” said a lobbyist familiar with the effort, who spoke on the condition of anonymity because his clients didn’t want him to speak. “You want to meet with the people who are going to hold the pen,” he said.
Far from Wall Street, on the rolling plains of Montana, some ranchers are eager for Congress to create a capital gains tax credit for retiring ranchers and farmers who sell land to those starting out as way to encourage younger people to take up the occupations.
Jess Peterson, a fifth-generation Montana rancher who is vice president of the U.S. Cattlemen’s Association, acknowledges that his group is looking for a “loophole.”
“Tax reform is coming up, so now is the time. What an opportunity,” said Peterson, whose D.C. firm, Western Skies Strategies, has been lobbying on the issue.
On Broadway, tax reform is also a top priority. The Broadway League, which represents theater owners and producers, wants to insert several incentives into the tax code that would benefit investors in live shows. The provisions included a quicker amortization of the investment, which in other words defers tax on profits until financiers have recouped their original investment. A similar benefit is already given to investors who help finance films and television shows.
Thomas Ferrugia, director of government relations for the league (which hired the D.C. lobbying firm Quinn Gillespie & Associates), said the change is needed because Broadway is so dependent on individual investors. He’s focusing his efforts on New York’s congressional delegation.
“Now is the time to do this because everything is potentially on the table with tax reform,” he said. “We’re going to keep pushing, so if an opportunity arises we’re right there to take advantage of it.”
Alice R. Crites contributed to this report.