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Fiscal Deal Sets Up Budget Conference, Raising Questions About Tax Reform

Posted on October 17, 2013 by Lindsey McPherson

At press time October 16, Congress appeared ready to approve a bill that would reopen the government, prevent a debt ceiling breach, and set up a joint conference committee on the budget where the House and Senate could further negotiate fiscal issues such as tax reform.

House Budget Committee Chair Paul Ryan, R-Wis., told reporters he couldn't say whether the budget conference would address tax reform. "We're going to have to get together" and determine that, he said.

If the conference committee should decide to discuss tax reform, it will likely raise questions that taxwriters themselves have yet to answer. The primary question would be how much revenue, if any, should be used for deficit reduction -- the House and Senate budget resolutions were roughly $1 trillion apart on that point -- and how much should be used to lower tax rates.

The formation of a budget conference was part of the fiscal deal Senate Majority Leader Harry Reid, D-Nev., and Senate Minority Leader Mitch McConnell, R-Ky., brokered to end the fiscal crises that have consumed Washington in recent weeks.

Their plan, which would fund the government at sequestration levels through January 15 and set up a process for suspending the debt ceiling through February 7 without making any tax policy changes, passed the Senate in an 81-18 vote. As of press time, the House had not yet voted on the bill, but it was expected to pass. President Obama was expected to sign the measure once it cleared both chambers.

The deal is not what either side had wanted. Democrats sought clean bill that would fund government and increase the debt limit but include no other policy riders. Republicans wanted to attach significant changes to the Affordable Care Act to a continuing resolution and to enact spending reforms in exchange for lifting the debt ceiling.

The deal the top two Senate leaders settled on is not clean, but it makes only a minor tweak to the ACA by strengthening the law's income verification process for individuals applying for premium tax credits under section 36B, and sets up a process for enacting the spending reforms Republicans are seeking through formation of the budget conference.

"This is far less than many of us had hoped for, frankly, but it's far better than what some had sought," McConnell said.

The budget conference is required to submit a report by December 13. "The [conference] committee members selected must have open minds [and] be willing to exert every option no matter how painful to their own political ideas and even their own political parties," Reid said.

Senate Budget Committee Chair Patty Murray, D-Wash., said the Senate's contingent to the budget conference will comprise the 12 Democrats and 10 Republicans of her committee. The House appointed four Republicans and three Democrats.

Ryan, who also serves on the House Ways and Means Committee, said budget conferees would be limited to members of the House and Senate Budget committees and noted that there are no forcing mechanisms he knows of that would actually require the conference committee to produce an agreement.

Ways and Means Committee Chair Dave Camp, R-Mich., said the budget conference does not change his timeline for moving a tax reform bill through his committee this year. "I'm still planning on moving forward," said Camp, who is not a member of the House Budget Committee and thus would not be directly participating in the conference committee discussions.

However, Camp acknowledged that the budget conference presents an opportunity to produce "either instructions for tax reform or some other agreements that make it easier for us to do tax reform."

Senate Finance Committee Chair Max Baucus, D-Mont., also said a budget conference could produce a tax reform framework but that it won't stand in the way of the work he is doing on the Finance Committee.

However, when asked if his committee was still on track to mark up a tax reform bill this fall, Baucus hinted that his timeline for tax reform has changed. "Fall is for publishing a very meaningful document," he said, adding that "it's too early to know" if the committee could still mark up a bill this year.

Camp said he'll be watching to see whether the conference committee can be productive under the short timeline it was given to produce a report. "I have my faith in Paul Ryan and his ability to try to get something to happen there," he said.

Camp acknowledged that a budget conference could complicate tax reform efforts by reigniting the revenue debate and raising the possibility of using reconciliation instructions to fast-track tax reform, as was proposed in the Senate budget resolution. "If a budget conference isn't successful, we can always fall back on regular order," he said.

Senate Republicans opposed the inclusion of reconciliation instructions in the Democratic budget resolution, largely because it would take away their ability to filibuster a bill. Baucus also opposed using the process for tax reform because reconciliation rules require every provision to alter revenues or outlays, making it difficult to achieve his primary goal of tax code simplification.

Baucus reiterated his concerns about reconciliation October 16, but added, "We have to get an agreement first before you deal with reconciliation." He said he plans to work with Murray to try to get a budget agreement.

"Reconciliation is not a good foundation for tax reform," Ways and Means Committee member Kevin Brady, R-Texas, said. "The restrictions are too binding and I think make it very difficult to create a pro-growth code."

Ways and Means member Charles W. Boustany Jr., R-La., said he's not optimistic that a budget conference will be the vehicle for lifting tax reform given how far apart the House-passed and Senate-passed budget resolutions are on the matter. "Democrats have showed over and over they want more revenue, and we want to see any revenue growth as a result of economic growth" rather than tax increases, he said.

Democrats are unlikely to back down from their position that increased tax revenue should be part of any budget framework the conference committee negotiates.

White House press secretary Jay Carney said President Obama will continue his call for a balanced approach to deficit reduction as lawmakers embark on a budget conference. "We will have, hopefully, serious, substantive negotiations around a broader budget agreement," Carney said. "And in that process, hopefully, there'll be a willingness to compromise by both sides."

Regardless of the prospects for success, the budget conference will not affect what the Ways and Means Committee is doing on tax reform, Boustany said. "The goal is to get the decisions made and get a legislative package ready and then start educating our conference on it," he said. "So the pace that we follow is not going to change."

Brady also predicted that the budget conference will not result in any agreement on tax reform. "I think the budget conference will be focused on redesigning the sequester, coming to some number agreement where we can get out of this [continuing resolution] cycle and start funding our priorities through appropriations," he said. "I think those are the two realistic outcomes."

Clarification, October 17, 2013: Murray gave the number of Senate appointees to the budget conference, not the total number of conferees from both chambers.

Meg Shreve contributed to this article.

Follow Lindsey McPherson (@lindsemcpherson) on Twitter for real-time updates.