Adding to the growing sense on Capitol Hill that tax reform is dead for now, the top Democrat on the House Ways and Means committee said Tuesday that he is "not confident" that Congress will reshape the federal tax code this year.
Rep. Sander M. Levin of Michigan said that tax reform will likely have to wait while Congress wrestles over whether to increase the nation's borrowing limit and how to handle looming automatic spending cuts to defense and domestic programs, which are scheduled to take hold in March.
Asked point-blank at a breakfast hosted by the Christian Science Monitor whether he is confident that lawmakers will hash out an agreement to reshape the nation's tax code this year, Mr. Levin said, "I am not very confident. I am hopeful."
The issue of tax reform has been a hot topic in Washington for decades. It picked up speed in 2010 when President Obama's National Commission on Fiscal Responsibility and Reform released a high-profile report that recommended Congress overhaul the code by reducing tax rates, curbing tax breaks and exemptions and broadening the tax base. The panel also recommended that Congress reduce the deficit by eliminating many of the "tax expenditures" written into the tax code.
Nina E. Olson, ombudsman for the IRS, slammed the complexity of the tax code for ordinary taxpayers in her annual report to Congress last week, noting that nine out of 10 American now must use software or pay a professional preparer to do their tax returns.
The push for reform, though, has lost some steam in the wake of the "fiscal cliff" fix that Congress passed earlier this month, which raised taxes on individuals making more than $400,000 a year and households making more than $450,000 a year.
Despite the rare show of bipartisanship, the deal, which deepens the national deficit by $4 trillion over the decade, left both parties wanting more.
Republicans said there were essentially no spending cuts or commitments to entitlement reforms to offset the higher tax rates, while Democrats said the federal government needed more than the $600 billion that the deal is projected to bring in over decade to run smoothly.
Those differences have now spilled over into the debate on
how to replace the $110 billion in automatic spending cuts -- known as sequesters -- that were first included in the 2011 deal to raise the nation's borrowing limit and weren't permanently dealt with in the fiscal cliff compromise.
Martin Sullivan, the chief economist at Tax Analysts, said that the nation's two top parties must find common ground on revenue levels before they can tackle the broader issue of rewriting the nation's complex tax code.
"It has always been the case that tax reform was never going to move forward until Democrats and Republicans decide on what level of taxes they wanted to have -- and this deal has only made that debate more acrimonious," Mr. Sullivan said. "So, it has pushed back the starting date for tax reform, but once they get that settled -- and eventually they must -- there will be great demand for tax reform."
Republicans now say they have closed the door on new revenues, weeks after House Speaker John A. Boehner floated a proposal to raise $800 billion in new revenue generated from closing tax loopholes,
Senate Minority Leader Mitch McConnell, Kentucky Republican, made that clear during an appearance on NBC's "Meet the Press," saying that "we have resolved the revenue issue, and the question is: What are we going to do about spending?"
Republicans also warn that Democrats will have to come up with spending cuts if they want to raise the nation's debt limit, which is set to expire in March.
Mr. Levin, though, said that Mr. Obama was right to say that he won't negotiate on the debt ceiling and said that Republicans have to accept that any deal to replace the $110 billion in automatic spending cuts that were included in the 2011 debt deal must have "a mixture of spending cuts and further revenue."
"Let me be emphatic. There is no way to meet the requirements of sequestration without balance. There has to be more revenues and there also has to be budget cuts," Mr. Levin said.
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