Baucus Says No Games on Extenders; Drafting Tax Reform Bill

WASHINGTON — Senate Finance Committee chairman Max Baucus said Monday that he plans to meet with committee members this week to discuss extending expired and expiring tax provisions “without any games.”

By games, the Montana Democrat said, he means the Democrats should not insist on the Buffett Rule, under which taxpayers who make more than $1 million per year would have a tax rate of at least 30%, and the Republicans should drop their call for repeal of the deduction for state and local incomes taxes.

“Let’s just stick within the confines of traditional extenders … extending some, repealing others,” he said in a speech on tax reform at the Bipartisan Policy Center.

“We need to take a hard look at each and every expiring provision todecide which to make permanent and which to eliminate,” he said. After the Tax Reform Act of 1986 there were only 14 expiring tax provisions, and now there are 132, he said. Several of those programs are muni bond related like the bank-qualified limit and Build America Bonds.

Baucus also said the committee will hold hearings on the Bowles-Simpson and Rivlin-Domenci reports on deficit reduction to examine what they really call for. Most folks don’t understand the details and the trade-offs involved with those reports’ recommendations, he said. The reports suggest either all or some new muni bonds not be issued as tax-exempt, in an effort to drastically cut tax expenditures and raise revenues.

To those who are calling for dramatic cuts in tax expenditures, Baucus said, “I think some of that is a little unrealistic.”

However, he acknowledged the need to raise revenues. He said he would prefer that revenue gains come from growth.

Baucus said he is “making progress” in drafting a “detailed tax reform proposal” that “will attract bipartisan support.”

While billed as a major speech laying out his plan for tax reform, it was very general and short on details.

Baucus set forth four broad goals of any tax reform bill — the creation of job through growth, an increase in the competitiveness of the U.S., more innovation, and increased opportunity.

Asked about a flat tax, he said that while it sounds good, it doesn’t work. The late President Gerald Ford proposed a flat tax that was supposed to be revenue-neutral and when analyzed, it would have given those with taxable income of more than $200,000 “a huge windfall” at a significant cost to lower-income earners, he said.

The Senate Finance Committee chairman said things have changed since 1986, the last time Congress approved major reforms to the federal tax code and that the U.S. needs a tax code for the 21st Century.

Since 1986, the U.S. economy has grown by 88%, “but this rising tide has not lifted all boats” because the income of the top 1% of taxpayers has grown almost eight times faster than the middle and 15 times faster than the poorest 20%, he said. The number of Americans in manufacturing jobs has dropped by a third and services like consulting and information technology are a bigger part of our economy. The U.S. has one of the highest statutory corporate tax rates in the world, he said.

“We given countless tax breaks to business, but many don’t attract certain investment,” Baucus said. In the past two decades, the number of U.S.-based companies on the Fortune Global 500 list has declined by 20%. Foreign companies are increasingly acquiring U.S. businesses, he noted.

“We know tax reform won’t be easy. We will need to slay some sacred cows,” Baucus said. “When favorite tax breaks disappear, someone will always be unhappy. But that’s the wrong way to look at it. The right way to look at it is to focus on results. Tax reform can create jobs. It can spark innovation. It can expand opportunity. It can guarantee our competitiveness. It can put America back on top.”

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