Tax Analysts Blog

Tax Reform: Will the Chairmen Offer Real Plans or Gimmicks?

Posted on Aug 5, 2013

“Get rid of the deductions that don’t affect me.”

It borders on the unbelievable that both Ways and Means Committee Chairman Dave Camp (R) and Senate Finance Committee Chairman Max Baucus (D) have vowed (here and here) to hold a markup of major tax reform legislation this fall. By “unbelievable” I do not mean that they do not truly intend to do as they say, but that the odds of a successful outcome are remote.

Let’s review a few facts:

    Congress does not return from summer recess until September 9.
    Significant cuts in tax rates (both corporate and individual) will require large cutbacks in almost all the major tax breaks currently in the Code.

To be fair to the Chairmen they did not say they would be able to pass tax reform legislation out of their committees. And with good reason. Despite the chairmen’s best effort to keep the process bipartisan, it is almost certain any vote will split largely along party lines because the parties cannot agree on an overall revenue target. After that, those members who do not dismiss the legislation out-of-hand for its overall effect on the budget will have to be willing to go on record as being in favor of cutting tax benefits for powerful interest groups. That is a lot to ask of members for a bill that is unlikely to become law.

All the chairmen need to hold a mark-up is something to mark-up, that is, a reasonably well-specified proposal (not necessarily a legislative draft) and revenue estimates of that proposal that summed together add-up to a revenue target. Although this will require a monumental amount of staff work, this is something that is entirely within the power of the chairmen to produce.

By far the most noteworthy and fascinating aspect of all this will be to see what tax breaks the Chairmen will put on the chopping block to pay for rate cuts. This is something almost every tax reform effort (e.g, from President Obama, from Mitt Romney, from Bowles-Simpson) to-date has avoided like the plague. The pressure and the temptation to resort to gimmicks will be huge. The most common gimmick used so far is to highlight rate cuts and give some vague promise about cutting tax breaks which will be specified later. (I call this “fill-in-the-blanks” tax reform.) The other is to assume large economic growth effects will result from tax reform so that tax breaks do not have to be cut much in order to achieve an overall revenue target. Apparently this latter approach is under consideration.

If Camp and Baucus do not produce a mark-up document as promised, or if they produce a mark-up document without specified proposals or defensible revenue estimates, all our skepticism about the chances for tax reform will be justified. But if they can put forward real tax reform plans, they will deserve high praise for boldness and courage. Yes, the chances for ultimate passage of reform will still be remote. But they will have made some real progress on an issue that so far, despite all the bold talk, has been stuck in the mud.

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