Incoming Senate Finance Chair Wyden Outlines His Tax Agenda

By :: February 10th, 2014

Senator Ron Wyden (D-OR), about to become the new chairman of the Senate Finance Committee, said Friday that he aims to eventually rewrite what he described as a “dysfunctional, rotting mess of a carcass that we call the tax code.” But in an acknowledgement of the challenges of tax reform, Wyden said he wants to quickly extend dozens of expiring tax provisions for another year as a “bridge” to reform and he even embraced some new tax subsidies.

Wyden will replace Sen. Max Baucus (D-MT), who the Senate confirmed Thursday as the new U.S. Ambassador to China.  Speaking in Los Angeles to a conference sponsored jointly by the USC Gould School of Law and the Tax Policy Center, Wyden framed his tax agenda around several key issues:

  • Narrow the gap between taxation of investment income and ordinary income.
  • Significantly increase the standard deduction.
  • Simplify and enhance the refundable Child Tax Credit and Earned Income Tax Credit.
  • Revise savings incentives by creating a new investment account for all Americans at birth, shift savings subsidies from high-income taxpayers to low- and moderate-income households, and consolidate and simplify the current tangle of existing tax-preferred savings incentives.
  • Enhance job training.
  • Restore Build America Bonds—a short-lived idea that partially replaced tax-exempt state and local bonds with direct federal subsidies. He’d also seek ways to encourage business to funnel overseas earnings into domestic infrastructure investment.

Wyden’s ambitious agenda incorporates most elements of his own 2010 tax reform plan though it goes beyond that proposal. And it includes some internal contradictions that he’ll eventually have to resolve.

On one hand, he says he wants to eliminate or scale back many of the tax expenditures that have made the Tax Code the dysfunctional rotting carcass he so memorably described. On the other, he’d add new subsides. For instance, his talk on Friday included a shout-out to Senator Bob Menendez (D-NJ) who introduced a bill called  Better Education and Skills Training (BEST) for America’s Workforce Act that would create $1 billion in new tax credits for firms that help train the long-term unemployed.

On principle, there is nothing wrong with replacing inefficient subsidies with better ones. But Wyden will find it extremely difficult to add some of his personal favorites while he’s slashing those of his colleagues.

Back in 2010, Wyden sponsored his own reform bill with now-retired GOP senator Judd Gregg (R-NH). He’s since gotten a new Republican cosponsor, Dan Coats of Indiana. The bill, called the Bipartisan Tax Fairness and Simplification Act, remains Wyden’s model for reform, though he made it clear that he’s willing to revise the proposal significantly to attract broader support. For a TPC analysis of Wyden original bill, click here.

That bill would create three individual income tax rates—15, 25, and 35 percent, significantly increase the standard deduction, repeal the Alternative Minimum Tax, and turn the preferential capital gains rate into an exclusion.

It would retain most big tax preferences such as those for home mortgage interest, state and local taxes, and employer-sponsored health insurance. But it would get rid of some smaller ones and turn the exclusion for municipal bond income into a refundable credit. It would set a single corporate rate of 24 percent and end some business preferences.

The TPC/USC conference was on income inequality and Wyden framed his tax agenda as part of a broader effort to address that issue. He said he sees proposed tax changes such as boosting capital gains taxes and expanding the EITC as part of an agenda that also includes raising the minimum wage.

That makes Wyden sound like a standard progressive Democrat. But his record is much more complex. For instance, Wyden has bucked his own party’s leadership by reaching across the aisle to lawmakers such as House Budget Committee Chairman Paul Ryan (R-WI) on Medicare reform.

Wyden likes big ideas, but he is also a pragmatist. His challenge as the new chair of the Finance Committee will be to mix the ambitious with the realistic. That’s what Bob Packwood, the last Finance Committee chair from Oregon, did when he helped pass the Tax Reform Act of 1986.

 

9Comments

  1. ND  ::  11:12 am on February 10th, 2014:

    Some of these may be good ideas, but I question his agenda with regard to family policy.

    Wyden’s agenda for tax structure for child responsibility seeks to reinforce patriarchal families, whether married or not (pay tax and benefit subsidies to men who do not take personal responsibility for their children; add extra taxes to women who take economic responsibility for their children) rather than to have the baseline be that both parents are responsible for meeting the needs of the child. What do you think of this?

    These subsidies to patriarchal families are one of the key direct and indirect drivers of the $17 trillion debt that is rapidly being shifted to Gen-X and younger people.

  2. AMTbuff  ::  2:19 pm on February 10th, 2014:

    The savings account proposal strikes me as unlikely to achieve the intended results, due to Reynolds’ Law: http://www.aei-ideas.org/2013/06/reynolds-law/

    The largest flaw in the proposal is that colleges will naturally increase their prices to absorb the extra money. But the precise mechanism by which this proposal will defeat itself is not important. Reynolds’ Law centers on confounding variables. It says that if you have misunderstood cause and effect, in this case believing that having at least a small savings account causes students to be more likely to attend college, your attempt to produce more of the effect will fail miserably.

    Unfortunately for us, bad social science often makes good politics.

  3. Michael Bindner  ::  12:50 am on February 11th, 2014:

    Wyden’s plan sounds good – although it would sound better if it were less bipartisan – with a top rate of 40% rather than 35%. Given the CBO report which shows that the biggest cost factor in ballooning the deficit over time is net interest, higher taxes on those who receive that interest is entirely appropriate. While tax simplification is certainly desirable, I hardly think it is worth the effort unless preform both gives more money to families with children (thus encouraging population growth which helps fund future social service obligations)while removing the obligation for most households to fire taxes at all – in other words, some kind of employer-based consumption tax (taxing all types of firms) which contains the needed credits and exclusions.

    The rub, however, is that the White House has shown no desire for comprehensive tax reform, nor have the House Republicans shown any desire to ever work with the White House. Essentially, then, tax reform is doomed until some other president proposes it to a Congress which is willing to work with him or her.

  4. Incoming Senate Finance Chair Wyden Outlines His Tax Agenda | Next Blog – Financial News  ::  12:19 am on February 12th, 2014:

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  5. Ralph H  ::  5:05 pm on February 12th, 2014:

    Overall sounds like a reasonable guy, but very warped thinking on savings. It looks like he wants to penalize normal (non-IRA/401K) saving by increasing taxes while adding yet another Federal regulated Retirement plan. Of course the service industry leaches love the special programs because of the fees.

    Here’s a simple proposal — make first $500 or $1000 of interest or dividend income tax exempt. helps the little guy, promotes savings and very low maintenance. Think we used to have something like this in tax code.

  6. Tom  ::  11:57 am on February 13th, 2014:

    Hey RON
    why don’t you pay your Payroll Tax on ALL YOUR INCOME WHEN now do we Vote FOR a Payroll tax Limit INCREASE ………REAL SIMPLE 1 Page BILL , any income from the TAXPAYER pays 6% ……Shouldn’t you Pay for UI Ins on ALL YOU PAY you TAKE FROM THE Taxpayer … …..VOTE NO DEBT there is a BETTER WAY …………..Abe said ALL MEN EQUAL ? Not TODAY …………….THIS is A JOKE ……..Ya know folks under obamacare the SCOTUS says its a TAX , so how are these folks Tax EXEMPT , with Obamacare there is a SLIDING SUBSIDY the more you make the less Subsidy, OR in OTHER words the MORE you PAY ? sounds like a nice shoe to ware RIGHT ????? ………………ding ding ding ….WRONG , you see Folks as with the PAYROLL TAX LIMIT of just $113,000 ……..SEEMS the Folks Listed Congress Judges Unions MAKE WELL OVER TWICE that Amount $200K $300K $500K ……with 3.6 MILLION in the FEDERAL work force CBO Suggests that as MUCH AS $208 BILLION in Medicare Tax is not collected for this Sector and they only Contribute on Just 1/2 ……1/3 some just 1/4 of what the TAXPAYER PAY THEM ………well folks in a ten year BUDGET that is a KOOL $2+ TRILLION …….Talk about Bernie Madoff PONZI SCHEME , Many of these same players in CONGRESS were involved with FANNIE & FREDDIE FRAUD THEFT ,……. “WE DONT NEED to RAISE the DEBT” …….WE JUST NEED TO COLLECT more from the FOLKS that TAKE from the PUBLIC TROUGH ………the DEMOCRATS Caused the 2008 FM & FM Housing Meltdown ,The DEMOCRATS had NO BUDGET , The DEMOCRATS Delay the LAWS on the BOOKS 27 times ,EXEMPT THEMSELVES ………THIS is OUTRIGHT THEFT………. UNLESS you are 1 of them?

  7. Tax Reform is Dead Until a New President Is Elected | Xtax  ::  11:45 pm on February 14th, 2014:

    […] has languished in the Senate, but obviously just got a new lease on life. This has had tax experts digging it out and looking it over for clues to what Wyden may do on tax reform and other pressing tax issues, such as the expiration […]

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