Tax Writers Debate What Breaks Should Be Saved
November 26, 2013
Senior congressional tax writers are beginning to draw their own lines for tax reform now that legislation is taking shape on Capitol Hill.
Two leading senators — John Thune (R-S.D.) and Ron Wyden (D-Ore.) — are lobbying their colleagues to leave the deduction for charitable contributions untouched.
Other tax writers have expressed their desire to maintain preferences for home ownership, like the mortgage interest deduction.
And lawmakers from energy-rich states, like Rep. Kevin Brady (R-Texas), are looking to ensure that robust incentives remain for the oil-and-gas industry.
“It’s a hard balance,” said Rep. Patrick Tiberi (R-Ohio), who chairs the Ways and Means subcommittee dealing with taxes. “There’s no question about it.”
The lobbying efforts of lawmakers who are supportive of tax reform underscores the challenge facing House Ways and Means Committee Chairman Dave Camp (R-Mich.) and Senate Finance Committee Chairman Max Baucus (D-Mont.).
Beyond the nagging question of whether a revamped code should raise more revenue, the chairmen are weighing which breaks and deductions to toss aside in an overhaul — choices that will be fiercely contested by lobbyists and interest groups.
Several business groups and lawmakers were critical of Baucus’s efforts last week to detail specific trade-offs that might be needed to lower tax rates, including the oil-and-gas industry, which is focused on preserving breaks for drilling.
“From a pro-growth perspective, is there any industry now or in the next decade that will contribute more economic growth than energy? It’s critical we get that portion right,” said Brady, who represents a Houston-area district.
“In energy — in every industry — there are tax provisions that are extremely pro-growth, critical provisions,” added Brady, who’s worked closely on tax reform with Camp and has been one of the effort’s biggest cheerleaders. “In all industries we want to retain those as we lower those rates, and that’s been our biggest challenge.”
Some of the other provisions tax writers are pushing to preserve happen to be among the most expensive in the code.
The Congressional Budget Office (CBO) said 10 tax breaks accounted for roughly two-thirds of the cost of all incentives in fiscal 2013, so declaring them off-limits would make an overhaul harder to accomplish.
The CBO projected that the charitable deduction, for instance, would cost some $39 billion in 2013, and then another $568 billion over the next decade.
Echoing the arguments of nonprofits, Wyden and Thune said last week that scrapping the deduction could reduce charitable contributions by billions of dollars each year and then force government funding to pick up the slack.
The mortgage interest deduction is even more expensive: $70 billion in 2013 alone. But Rep. Kenny Marchant (R-Texas), who represents a suburban Dallas district and is a former developer, said he was far from the only Ways and Means member to press Camp over the importance of keeping the provision.
The lawmakers most committed to reform say it’s natural that individual tax writers would fight for certain interests, and say their deliberations will only make the final product stronger.
Camp has been pushing to mark up a tax bill this year, but seems all but certain to fall short of that goal. He’s had to grapple with tough projections from the Joint Committee on Taxation and the desire of GOP leadership to keep the focus on ObamaCare.
Participants in the process said the delay has given Camp more time to meet with members about the bill.
“It’s made it last a little longer, but it’s made the members buy into the product a lot better because they had their input listened to,” said Marchant, who added that Ways and Means Republicans had agreed to keep their specific requests private to give Camp more room to maneuver.
Tiberi also insisted not all of the pricey tax incentives would have wide-ranging support.
“You have to recognize that there are things in the tax code that have a limited number of supporters and things in the tax code that have broad support,” the Ohio Republican told The Hill. “Charitable contribution has broad, bipartisan, bicameral support.”
“Not all of them,” he added when asked about which expensive tax breaks don’t have deep-seated support. “That one does.”
At the same time, some of the costly tax breaks that many Republicans aren’t the biggest fans of, like the deduction for certain state and local taxes, are popular among Democrats — showing again the difficulty of the puzzle Camp and Baucus are trying to put together.
“If incomes are pretty flat and are just going up a bit, that’s protection,” said Rep. Bill Pascrell (D-N.J), who’s from one of the high-tax states most reliant on the state-and-local deduction.
Still, tax writers stress that just because they’re looking after an industry’s interests doesn’t mean those sectors will get everything they want in tax reform.
“My caution to every industry I’ve spoken to or listened to the last two and a half years has been the status quo is not an option,” Brady told The Hill. “If we want to lower the rates, every industry at some point has to make a contribution toward lowering those rates.”