Tax-Exempt Status Will Be a Topic In Reform Talks, Lawmakers Say

The top tax-writing lawmakers said Wednesday that while a debate about the tax-exempt status of state and local bonds will certainly be in the mix as part of a broader tax-reform debate, it is too early in the discussion to delve into specific issues.

House Ways and Means Committee chairman David Camp, R-Mich., and Senate Finance Committee chairman Max Baucus, D-Mont., made the remarks after holding a meeting to further the tax-reform debate. Asked about munis, Camp told reporters that the tax-exempt interest debate will “certainly” be part of the conversation, but that “we’re not looking at specific items right now.”

Baucus agreed with Camp on the need to discuss tax-exempt interest, but said “it’s premature” to stake out positions now.

During the meeting, committee members heard from two architects of the Tax Reform Act of 1986 — Richard Gephardt, who sponsored the bill in the House, and James Baker 3d, former chief of staff and Treasury secretary in Ronald Reagan’s administration.

The meeting came as the House Budget Committee began debating a fiscal 2012 budget resolution proposed Tuesday by chairman Paul Ryan, R-Wis. It calls for the highest individual and corporate tax rates to be lowered to 25% from the current 35% rates. The debate was still going on at press time but members were expected to vote on the resolution.

Baker and Gephardt shed light on the challenges they faced beginning in 1984 when they started work on rewriting the tax code. In the 25 years since the law passed, the tax code has been “loaded up” with special-interest deductions and loopholes, Baker said.

Americans “hate this tax code” and are eager for Washington to make changes, he said.

“I think the stars are right for tax reform,” he said, while underscoring the immense challenge facing today’s lawmakers. “I can’t think of a legislative undertaking that is any tougher than tax reform.”

Baker advised the committee to focus on tax reform that is revenue-neutral and does not interfere with the current distribution scale.

Gephardt acknowledged that the political climate for tax reform might be tougher now than it was in mid-1980s. Lawmakers will need to dedicate themselves to bipartisanship to succeed with tax reform.

“You have to infuse the habits of bipartisanship,” he said.

Both speakers said real traction on tax reform may not develop until after the 2012 elections. They emphasized that the conversation needs to start now so that there is momentum for tax reform after the elections.

The other crucial issues for tax reform will be corporate income held overseas, as well as mortgage interest and health care cost deductions, they said.

For reprint and licensing requests for this article, click here.
Tax Washington
MORE FROM BOND BUYER