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Tax Talks Dominate Capitol Hill

Twenty-five years after President Ronald Reagan signed his sweeping Tax Reform Act into law, tax talk is once again buzzing around Washington, D.C., and some on K Street are girding for the next generation of reforms.

“We all believe that it’s going to happen in the not-too-distant future,” said H. Stewart Van Scoyoc, president of Van Scoyoc Associates, which has beefed up its tax policy team in preparation. “The engine has been lit.”

From President Barack Obama’s “Buffett Rule” plan to raise taxes on those making more than $1 million a year, to GOP hopeful Herman Cain’s 9-9-9 tax plan, tax reform proposals are dominating political and deficit debates.

The Congressional super committee charged with finding more than $1 trillion in budget savings by Nov. 23 is mulling tax code revisions. Senate Republicans’ new jobs bill includes a plan to reduce the individual and corporate tax rates to no more than 25 percent. The Senate Finance and the House Ways and Means committees have held closely watched tax reform hearings this fall.

Tax simplification and corporate tax reforms were central to the deficit reduction plan released last year by Obama’s National Commission on Fiscal Responsibility and Reform. By the end of this year, the administration will unveil a plan to overhaul the corporate tax code, Treasury Secretary Timothy Geithner told reporters last month.

“Suddenly, there’s a lot of tax issues on the table,” said Elaine Kamarck, co-
chairwoman of the recently formed Reducing America’s Taxes Equitably Coalition, a group of businesses and trade associations pushing for a lower corporate tax rate as a starting point that enjoys bipartisan support. She added: “The classic trade-off is lower rates and then getting rid of loopholes.”

Co-chaired by Kamarck, who served in the Clinton White House, and by James Pinkerton, a former aide to Reagan and President George H.W. Bush, the RATE Coalition has grown to 18 members since its launch last month, most recently adding CVS Caremark, Intel, Texas Instruments and its first financial services company — Capital One — to its roster.

In a letter Wednesday to the Joint Committee on Deficit Reduction, the RATE Coalition made the case for corporate tax code reductions and noted that it “has been 25 years since our country accomplished comprehensive, corporate tax reform.”

The Tax Reform Act’s 25th anniversary, which hits officially on Saturday, has sparked a round of reminiscences, forums and white papers among budget analysts and tax wonks around town.

The publication Tax Notes put out a special anniversary issue featuring commentary by leading political players and tax experts who played a role in the 1986 overhaul. The Tax Policy Center, run by the Urban Institute and the Brookings Institution, hosted a panel discussion Wednesday with leading tax experts dubbed “Time to ’86 the Tax Code? Prospect for Tax Reform After 25 Years.”

For all the chatter, no one expects tax reform to happen overnight. The 1986 overhaul was the product of excruciating negotiations over four years. Reagan had articulated a detailed plan and made reforming the tax code a leading priority, and Republicans and Democrats worked together in a bipartisan atmosphere now absent from Capitol Hill.

“This is one of those [areas] where both parties use the same word to mean completely different things,” said Grover Norquist, president of Americans for Tax Reform, founded in 1985 to lobby for Reagan’s overhaul. “Democrats want to raise taxes and Republicans don’t, but both call it tax reform. That’s not consensus.”

Norquist has helped solidify GOP anti-tax orthodoxy with his group’s widely circulated no-tax pledge. Few on Capitol Hill expect any real tax reform action until 2013, given political polarization and the focus on the 2012 elections.

But even Norquist acknowledged that momentum is building for a reduction in the corporate tax rate, which some argue hurts American companies internationally and even tamps down wages and job creation. Net profits for U.S. companies are taxed at a rate of 35 percent, compared with an average of 25 percent for other Organization for Economic Cooperation and Development nations.

Many of the same arguments that drove the ’86 reforms — for fairness, simplicity and economic growth — are back on the table, said Bruce Thompson, who signed on with Van Scoyoc Associates as a vice president as part of its tax team expansion. Thompson served in the Reagan administration and worked in the trenches on the 1986 reforms.

The firm also brought in Jeff Hamond last month as a vice president specializing in tax and economic issues. The firm has also recently helped pull together two tax-related business coalitions: The Coalition for E85 is lobbying to prevent the tax credit for ethanol fuel from expiring at the end of this year, and the Coalition to Save Tax-Exempt Bonds is working to fend off proposals to limit the tax exemption for municipal bonds.

Such efforts underscore the challenges innate in any tax overhaul. Eliminating loopholes might look good on paper — but when specific deductions are on the chopping block, taxpayers can be expected to fight back.

And the broader the overhaul, the more taxpayers involved.

“The one lesson that you can learn from the ’86 act is that everyone is in jeopardy,” Thompson said.

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