Congress has a once-in-a-generation opportunity to rewrite the U.S. tax code to promote job growth and reduce the federal budget deficit, said Senator Max Baucus, chairman of the Senate Finance Committee.
Jobs, innovation, competitiveness and opportunity for lower-income Americans to advance should be four principles that lawmakers focus on as they revise the tax code, he said today in a speech at the Bipartisan Policy Center in Washington. The Montana Democrat provided few details on his ideal tax code, such as a top rate, a revenue level or the fate of tax breaks.
“It’s time we had a tax code for the 21st century,” said Baucus, 70, who said he was “making progress on a detailed tax reform proposal that will attract bipartisan support.”
Unless Congress acts, tax rates for wages, capital gains, dividends and estates will increase at the end of the year as tax cuts expire. The increases are part of a so-called fiscal cliff that includes automatic spending cuts and could push the U.S. into a recession if Congress does nothing, according to the Congressional Budget Office.
Baucus provided few hints about what he thought Congress should do, saying lawmakers shouldn’t lock themselves into positions before the election that inhibit their ability to act in the lame-duck session afterward.
“My view is everything is on the table,” he said. “That’s a psychology that I think is very important to get people talking.”
President Barack Obama has proposed higher tax rates for the top 2 percent of earners and limits on their ability to take tax breaks. He supports lower corporate rates, coupled with the removal of tax breaks.
House Republicans, in contrast, adopted a budget for 2013 that calls for no additional revenue and 25 percent top rates for individuals and corporations, down from 35 percent today. They haven’t specified what tax breaks they would eliminate or curtail.
“While we may not agree on everything, Chairman Baucus is to be commended for outlining a framework for a tax overhaul that is another integral step to achieving that goal,” Senator Orrin Hatch of Utah, the top Republican on the Finance Committee, said in a statement. “I look forward to examining what he laid out today as we continue the march toward a successful tax reform effort that will lower rates and broaden the base in order to make our tax system simpler and more efficient and effective.”
Panelists who spoke after Baucus today noted his cautious approach to offering details, which fits with his record of trying to develop consensus bipartisan proposals.
“There was nothing that he said that impedes bipartisan cooperation,” said Robert Greenstein, president of the Center on Budget and Policy Priorities, a Washington group that advocates policies that benefit lower- and middle-income Americans.
Baucus said he hoped to speak with members of his panel about expired provisions, such as the research and development tax credit, to see if those are issues on which lawmakers can start working without having to consider Democratic proposals for the “Buffett rule” tax on millionaires or Republican proposals to repeal the estate tax.
He called for changes to the international tax system to help make U.S. companies more competitive and prevent profits from being shifted to overseas tax havens, saying the U.S. has the “worst of all worlds.”
He didn’t say whether he would support a switch to a territorial system that would exempt taxation of most foreign profits, like the one his House counterpart, Representative Dave Camp, has proposed.
Asked about Camp’s plan after the speech, Baucus said: “I’m not sure what he proposed. None of us know precisely. The main thing is this: I believe that too often this town, we’re focusing on mechanics.”
Camp, a Michigan Republican and chairman of the Ways and Means Committee, has proposed coupling an extension of expiring tax cuts with a process to require a tax overhaul in 2013.
Baucus said he would consider such triggers, which he noted have been discussed before in bipartisan efforts.
Lawmakers should scrutinize tax breaks to ensure they’re justified and achieving the desired results, and Congress will need to “slay some sacred cows,” Baucus said. He said education tax benefits should be restructured because they “currently give the most help to those who already have the most opportunities.”
Baucus said he plans to hold a hearing soon on a plan proposed by the leaders of the president’s fiscal commission, former Senator Alan Simpson, a Wyoming Republican, and Erskine Bowles, former President Bill Clinton’s White House chief of staff. Baucus served on the panel and opposed the proposal.
He also said he would hold a hearing on a plan developed through the bipartisan center by former Republican Senator Pete Domenici and Alice Rivlin, former director of the Congressional Budget Office.