Will the Retirement of Max Baucus Open the Door to Tax Reform?
It has become conventional wisdom in Washington that the just-announced retirement of Senate Finance Committee Chairman Max Baucus (D-MT) boosts chances for tax reform in the short term. I’m not so sure.
The upbeat argument goes like this: By announcing that he will not run for reelection in 2014, Baucus is free from the pressures of being a Democrat in a very red state. No longer will he fear tilting too far from his conservative constituents—a concern that helped drive his well-known caution when it came to Democratic priorities such as the 2010 Affordable Care Act and, more recently, background checks for gun buyers, taxes on Internet sales, and even the party’s own budget.
In addition, the optimists say, tax reform would be a wonderful political legacy for both Baucus and House Ways & Means Committee Chairman Dave Camp (R-MI), whose own chairmanship is term-limited after 2014. Thus, the two have both the freedom and the sense of urgency needed to drive politically-challenging reform.
All that may be true, but here’s why it may not result in a tax code rewrite.
Being a lame duck may be liberating, it also makes a politician a rapidly-depreciating asset. Baucus’s clout with his committee and the Senate leadership (already weak) will fade. His senior staff, looking to leverage its connections while the boss is still around, will rapidly decamp for K St. or other Senate offices. And Senate liberals may think they’ll get a better hearing from the panel’s next chair, most likely Ron Wyden of Oregon.
The biggest challenge, though, remains the nitty-gritty of tax reform itself.
At a Ways & Means hearing today, economists and housing industry representatives weighed in on reworking the housing subsidies that litter the tax code. To the surprise of no one, most of the economists (including my Tax Policy Center colleague Eric Toder) urged the panel to at least restructure the Mortgage Interest Deduction and other housing-related preferences. The industry…well, the industry did not.
Then, there is the matter of revenues. Baucus, like Camp, prefers a reform that lowers rates and scales back tax preferences but raises the same amount of money as the current Revenue Code. This base-broadening, revenue-neutral reform was the model of the 1986 Tax Reform Act, but it is not the goal of President Obama and many Senate Democrats. They insist on using reform as a vehicle for raising hundreds of billions of dollars in new revenues.
Camp, by contrast, must answer to a GOP caucus for whom this idea is toxic. And House Republicans seem to be digging ever more deeply into their ideological trenches.
Just yesterday, rank and file Republicans forced their own leadership to pull a bill aimed at making it easier for people with pre-existing conditions to buy health insurance. The leadership wanted to show it recognizes the need for this population get coverage. The rank and file wants only another vote to repeal Obamacare.
Similarly, few see a path through the House for either immigration reform or the Internet sales tax bill, though both have broad bipartisan support in the Senate. All this means that the great dividing line of tax reform—new revenue or no new revenue—grows ever-sharper. And it is hard to imagine that Baucus and Camp can bridge it, even if they want to.
However, there is a kind of tax reform Baucus might be able to help pull off before riding off into the Montana sunset. It isn’t a full-blown rebuild of the Code. It is, rather, a major spring cleaning.
Baucus and Camp might be able to engineer a measure that simplifies key elements of the tax law. For instance, they could improve the operation of refundable credits for low and moderate income families as my TPC colleague Elaine Maag has proposed. They could rationalize the dozens of tax-favored savings vehicles that confound workers, improve tax breaks for education as TPC’s Kim Rueben has proposed, or restructure the subsidy for charitable giving in a way that generates new revenue while not discouraging philanthropy as TPC’s Gene Steuerle has urged.
Baucus and Camp do have an opportunity here. It may not be a once-in-a-generation rewrite of the tax code, but it is a chance to vastly improve what we have. And that’s a pretty good legacy.