Senate Finance Leaders Offer Blank-Slate Approach to Tax Reform


The two leaders of the Senate Finance Committee have offered to take a “blank slate” approach as a starting point for tax reform, in which there would be virtually no tax breaks available, and called on their Senate colleagues to provide suggestions on which tax provisions need to be added back and improved in a reformed tax code.

“Over the past three years, the Finance Committee has been working hard on tax reform on a bipartisan basis,” Senate Finance Committee chairman Max Baucus, D-Mont., and ranking Republican member Orrin Hatch, R-Utah, wrote in a letter to colleagues. “We’ve held more than 30 hearings and heard from hundreds of experts on reforming the tax code. We’re now entering the home stretch. We need your input and partnership to get tax reform over the finish line.”

Baucus and Hatch emphasized that any tax provisions should be added back only if they help grow the economy, make the tax code fairer, or effectively promote other important policy objectives. Senators have until July 26 to submit their proposals.

“This blank-slate is not, of course, the end of the discussion,” Baucus and Hatch wrote. “Indeed, we both believe that some existing tax expenditures should be preserved in some form. But the tax code is also littered with preferences for special interests.”

To help inform submissions, the Senators had the nonpartisan Joint Committee on Taxation and their staffs analyze the relationship between tax expenditures and the current tax rates if the current level of progressivity is roughly maintained. The amount of rate reduction would depend on how much revenue was reserved for deficit reduction, if any, and from which income groups.  However, JCT and Finance Committee staff determined that every $2 trillion of individual tax expenditures that are added back would, on average, raise each of the seven individual income tax brackets by between 1.3 and 2.2 percentage points from what they would be under the blank slate.

Likewise, every $200 billion of corporate tax expenditures that are added back would, on average, raise the top corporate income tax rate by 1.5 percentage points from what they it would be under the blank slate.

Baucus and Hatch said the JCT report demonstrates that the more tax expenditures allowed in the tax code, the less revenue available to reduce tax rates or reduce the deficit.

The chairman of the tax-writing House Ways and Means Committee, Rep. Dave Camp, R-Mich., saw the move as a positive step forward in the tax reform efforts that he, Baucus and Hatch are pursuing.

“Today’s announcement by Chairman Baucus and Senator Hatch is welcome news for Americans who deserve a simpler, flatter, fairer tax code that leads to more jobs and higher wages.  This significant step forward underscores that the Senate and House are on the same page as they work in a bicameral, bipartisan manner to fix our broken tax code.”

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Small Business Groups Urge Tax Reform Instead of Tax Hikes from Fiscal Cliff

A group of business trade associations have sent a letter to Congress urging lawmakers to reject President Obama’s call for higher marginal tax rates on main street employers.

A total of 42 business organizations employing tens of millions of workers sent the letter to Capitol Hill urging Congress to avert tax hikes and instead pursue comprehensive tax and entitlement reform.

“[W]e strongly urge Congress to pursue comprehensive tax reform that lowers rates on all forms of business income while enacting significant entitlement reforms that put the federal budget on a sustainable fiscal path, they wrote. “[W]e call on Congress to avoid raising marginal tax rates on employers, either as part of negotiations over the fiscal cliff, or as part of larger effort to reform the tax code. Instead, Congress should seek to enact comprehensive tax reform that simplifies the tax code and encourages economic growth for both pass-through businesses and corporations.”

The small business groups cited a recent economic report from the non-partisan Joint Committee on Taxation that nearly 1 million businesses and more than half of all small business income earned will be hit by the tax hikes. A recent Congressional Budget Office report confirms that if those same tax rates rise, hundreds of thousands of jobs could disappear.

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