Obama Tax Rewrite Challenged by Missing Relationships

October 14, 2011

Bloomberg

By Steven Sloan

The Obama administration doesn’t have the type of rapport with congressional leaders that would be necessary to complete a U.S. tax-code overhaul, said Michael Mundaca, a former assistant Treasury secretary for tax policy.

“What we’re missing is the relationships between the administration and leaders on the Hill that can move this forward,” Mundaca, who left the Obama administration in May, said today at an international tax conference in New York sponsored by Ernst & Young. “You need very strong cross-aisle and cross-branch cooperation and we haven’t seen that yet.”

Mundaca, now the co-leader of the national tax department at Ernst & Young, described an administration navigating with caution the politics surrounding tax policy.

During his time at Treasury, Mundaca was part of a team charged with developing an outline of the administration’s priorities for a tax-code rewrite. He said the administration will make a calculation about whether to release the paper as a set of options or as a more definitive list of what President Barack Obama is seeking.

“If it is straight up, this is a Treasury administration recommendation on tax reform, there are big challenges to getting that out in this environment,” he said. “The supercommittee is still working. There’s a lot of partisanship on this issue.”

‘Advancing the Ball’
A report exploring the alternatives Congress and the administration could consider would be easier to release soon, he said.

“It’s just advancing the ball to get to the next stage,” he said. “The determination of what’s in the paper and what’s going to be released is going to be made based on what can get tax reform closer to the goal line.”

Mundaca said he doubts Congress will renew dozens of targeted tax benefits such as the research and development tax credit before they expire at the end of 2011. He said lawmakers have established a “pattern” of allowing the breaks to expire and then renewing them later on a retroactive basis, as Congress did at the end of 2010.

Separately, it will be difficult for Congress and the administration to agree on how or whether to pay for so-called “extenders,” he said. Extending the tax breaks for one year would cost the federal government about $30 billion in forgone revenue, according to the congressional Joint Committee on Taxation. The package of extenders wasn’t offset last year, when it was part of a bill extending expiring income tax cuts.

“There are not many revenue-raisers left that either the president’s budget or anything else the administration can come up with that are not controversial,” Mundaca said.

He said Obama and Treasury Secretary Timothy Geithner remain “very committed” to overhauling the tax code.

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