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Slaying the monstrous tax code is no easy task

- The Washington Times - Thursday, August 2, 2012

From President Obama to House Speaker John A. Boehner, there's broad consensus that Congress needs to unclutter the federal tax code and remove the special breaks that litter its 70,000 pages — but Thursday's dry run in a Senate committee showed just how tough it will be to slash.

The Finance Committee voted to renew 51 special tax breaks for another year and to raise the level of a tax designed to hit the wealthy, at a cost of more than $205 billion — all of it tacked onto the deficit.

Sen. Max Baucus, Montana Democrat and chairman of the committee, said that counted as progress — 21 other special tax breaks could have been included but weren't.

"This bill is a good first step," he told his colleagues.

But Republicans said that if it was a dry run for next year, it was a failure.

"I hope it's not. When everybody starts talking about how great tax reform will be but then they don't have the appetite to deal with them now, it's not a great start," said Sen. John Cornyn, Texas Republican.

Tax reform was supposed to be one area where Mr. Obama and House Republicans could agree to work on over the past two years.

But it has fallen by the wayside as Capitol Hill has fought over spending and the narrow question of what to do with the Bush-era tax cuts, which expire at the end of this year.

Now, even as those other two issues are unresolved, all sides are promising yet again to tackle the tax code — next year.

House Republicans on Thursday passed a bill that amounts to a down payment, at least, on the process. The bill creates expedited rules for getting a tax overhaul onto the chamber floor, and also requires that it meet special conditions such as keeping total government revenue to less than 20 percent of the gross domestic product.

Restrictions like that make the bill a nonstarter in the Senate.

Tax reform is expected to address both the overall tax rates and the hundreds of credits and deductions that taxpayers use to shelter some of their income from the Internal Revenue Service.

More than 100 of those tax breaks are due to expire each year, and Congress acts regularly to extend them — which is what the Senate Finance Committee was dealing with Thursday, in an annual exercise known as the "tax extenders."

Under pressure from all sides, Mr. Baucus culled the list of extenders by more than 20, sending his colleagues a draft Tuesday that cost $151.7 billion, of which $92 billion was to raise the point at which taxpayers get hit by the alternative minimum tax.

By Thursday morning, however, staffers said Mr. Baucus had been persuaded to add more than $50 billion in extra tax breaks, including $40 billion for a two-year extension of the alternative minimum tax, which was designed to make sure the wealthy paid taxes but increasingly catches upper-middle-class taxpayers.

Among other add-ins were a $12 billion carve-out for wind energy projects, and a $78 million break for motorsports facilities such as NASCAR tracks.

The panel voted 19-5 for the final $205 billion package, with all 13 Democrats and six Republicans in favor and five Republicans opposed.

"This is essentially the prelims for tax reform. That's what this is all about in trying to show you can wring efficiencies out of the code," said Sen. Ron Wyden, an Oregon Democrat who has long been an influential advocate for a full tax overhaul.

During committee action Thursday, Mr. Wyden won a vote to add back in a tax credit for electric motorcycles, though he said it was more narrow than an earlier version and that it's still consistent with his reform principles.

"You almost have your foot in two camps," he said of himself and fellow reformers. "While you work for broad reform, you can't just sit in the corner with your arms crossed and say, 'I'm going to ignore my constituents, particularly ones that are small businesses, that are innovative, who I think are representative of our challenges in global markets.'"

A number of senators said they would be willing to cut more deeply — but only if it happens at once. In the meantime, they said, Thursday's bill is a step in the right direction.

But Sen. Tom Coburn, Oklahoma Republican, said the committee managed to cut just $6 billion in tax credits, which he called a bad start.

He offered amendments to curb a tax credit for manufacturers of energy-efficient appliances and the wind energy credit, saying the amounted to the government interfering in the markets.

Other Republicans defended the wind tax credit as a needed boost to a nascent industry.

Sen. Charles E. Grassley, an Iowa Republican who backs the wind credit, said it was unfair to cut some credits now.

"No single energy tax incentive should be singled out over others, energy-related and not, before a broad-based tax reform debate," he said. "Until tax reform is undertaken, workers and employers need certainty in existing tax law."

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