WASHINGTON — Key congressional tax staff for Democrats on Thursday rejected the idea of corporate-only tax reform, saying it would be a tough sell to lower corporate tax rates in a bill that contains no benefits for individuals.
They made their remarks one day after President Obama said he hoped the administration and Congress could reach a bipartisan agreement on corporate tax reform — suggesting the administration and Democrats on Capitol Hill are not in sync on tax reform.
The disconnect may be good for municipal bonds, in that market participants think any tax reform efforts are a threat, as lawmakers look for ways to pay for tax law changes. President Obama's budget requests have called for cutting to 28% the value of tax exemption, which would equivalent to a tax on munis. House Ways and Means Committee chairman Dave Camp, R-Mich., proposed eliminating tax exemption for private-activity bonds issued after 2014 in the draft tax reform plan he released earlier this year.
"I think there's a lot of room for compromise on tax reform," Cathy Koch, the chief advisor on tax and economic policy to Senate Majority Leader Harry Reid, D-Nev., said during a BloombergBNA and KPMG-sponsored webinar on post- election tax issues. But Democrats will have trouble just doing corporate tax reform, she added.
Todd Metcalf, chief tax counsel for the Senate Finance Committee, agreed, saying, "there is a sweet spot" where members of both parties could come together, but it should be comprehensive, not corporate, tax reform. "It just seems a little short-sighted to focus only on business," he said. "I think we should pursue the whole thing."
Metcalf said that for most Americans, "corporate rate reduction is less popular than Congress."
Koch said that while comprehensive tax reform will be harder, "It's our responsibility to do it."
Staffers on both sides of the aisle said there have been several tax reform proposals and the staff has done an enormous amount of work in this area.
"We're all waiting to see something from the administration," said Warren Payne, majority policy director for the House Ways and Means Committee.
Payne said it took Camp and about a dozen committee staff members three years to come up with his draft tax reform plan. The Treasury Department has a lot more staff and resources that could be deployed for tax reform. "One way or another, the administration has to turn Treasury loose," he said, "We need the people in that building."
Mark Prater, deputy staff director and chief tax counsel for the Senate Finance Committee, agreed that, "the Treasury Department has tremendous resources" but said also that "the Treasury brings another dimension to the discussion." First there must be discussions between administration officials and folks on the Hill, he said.
Comprehensive tax reform should not be revenue- or rate-target driven, said Karen McAfee, chief tax counsel for the Democrats on the House Ways and Means Committee. Metcalf agreed, saying, "If we set revenue or rate targets, we're kind of setting ourselves up for failure."
"We need to be focus on getting the policy right," he said.
Payne said Camp cut tax rates to create job growth, but tried to make sure his tax reform plan was "distributional-neutral" as far as tax burdens.
Noting that Camp opened himself up to a lot of criticism with his draft plan, Koch said it will be important for lawmakers and staff from both parties to stick together on whatever reform plan they can agree on. "The lobbying is going to be ferocious," she said, adding she still gets calls every day from groups supporting various tax expenditures. "Everybody here has to be totally unified," she said.
"We all have to get in the room and we all have to jump together," said Metcalf.
Meanwhile, most tax staffers were optimistic during an earlier session that Congress can approve legislation during the lame-duck session to extend, or possibly even make permanent in some cases, expired tax provisions, called "extenders."
They said it would ridiculous to extend the provisions for one year because that period would be up too soon and that it would be difficult to punt extenders into 2015 because that would cause confusion for taxpayers filing returns. Internal Revenue Service Commissioner John Koskinen recently urged lawmakers to act soon on extenders of risk delaying the filing season.
George Callas, staff director for the House Ways and Means Committee's subcommittee on select revenue measures, said a two-year extenders bill "would be a very heavy lift in the House" and that Republicans would want some extenders made permanent. But Aruna Kalyanam, tax counsel and staff director for the Democrats on the select revenue measures panel, balked at the idea of "cherry-picking" provisions to be made permanent.
Most of the tax staffers stressed they were speaking for themselves and not their members or committees.
