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Finance Tax Extenders Deal Serves as ‘Dress Rehearsal’ for Full Reform

Senators took baby steps toward next year’s expected surgery on the tax code today in what they called their first “dress rehearsal” for a broader rewrite next year.

The Finance Committee easily advanced the first trims to tax expenditures, 19-5, at the markup.

“This markup is not business as usual. The Chairman’s mark reverses the trend on extenders. The tide is turning,” Sen. Orrin Hatch (R-Utah), the committee’s ranking member, said.

Senators on both sides joined Hatch in praising Chairman Max Baucus (D-Mont.) for the work product, which would eliminate about 20 of 73 stopgap tax provisions that are repeatedly extended. The final package would block the Alternative Minimum Tax from hitting middle-income taxpayers for two years, raising the cost to about $205 billion.

The modified measure also added back a wind proposed tax credit opposed by presumptive Republican presidential nominee Mitt Romney, as well as a special tax benefit for motorsports race tracks. Senators on the panel easily beat back an effort by Sen. Tom Coburn (R-Okla.) to scale back the wind benefit, which has been championed by Sen. Chuck Grassley (R-Iowa), the former ranking member of the committee.

Earlier this week, Grassley took Romney’s campaign to task for announcing the presumptive GOP presidential nominee’s opposition to the tax credit — particularly because it is important in a swing state such as Iowa. But on Wednesday, Grassley said he believed he would be able to restore the tax credit in the Finance bill.

Coburn only touched on the 61 amendments he had filed with the committee to take apart the package. Senators from both parties also frustrated his efforts to cut tax breaks for energy-efficient home appliances.

“Am I satisfied with the number of drops? The answer is emphatically ‘no’. I would like to drop more. And I appreciate those on the committee who have worked hard to trim this list back even further,” Hatch said. “Even if all of that work does not yield fruit today, I expect that it will in the future.”

Baucus, who invariably starts speeches with famous words, quoted President Franklin Roosevelt today. “Our capacity is limited only by our ability to work together,” Baucus said.

Despite the bipartisan cooperation, when — or whether — the bill will reach the Senate floor is anyone’s guess.

In the Olympic spirit, however, Sen. Ron Wyden (D-Ore.) called the package “essentially the prelims” for tax reform, with Sen. Maria Cantwell (D-Wash.) adding that she would give the chairman’s mark “a gold medal.”

Cantwell championed continuing to allow taxpayers from states without income taxes to deduct state and local sales taxes from their federal returns instead.

The meeting was not without partisan acrimony that could foreshadow problems in the fall.

Sen. Charles Schumer (N.Y.), the Democratic Conference Vice Chairman, brought forth what he jokingly called a “tiny little amendment” to extend a $2,500 tuition tax credit from the 2009 economic recovery law championed by President Barack Obama.

Schumer refrained from pushing his amendment to a vote, citing GOP opposition.

“Somehow, because it was in the stimulus bill, it has become a no-no,” he said.

Hatch responded that Senators need to take a broader look at how government intervention is raising the cost of a college education.

“I worked as a janitor to get through college,” Hatch said, acknowledging that at current tuition rates, that may not be practical. “We’ve got to look at all these transfer payments.”

Republicans also raised concerns about audit findings that some taxpayers were defrauding the program, claiming the tax credit for purposes other than tuition and textbooks.

“We want to work with you to eliminate the fraud,” Schumer said. “Who do you hold leaving the bag when you don’t renew this?”

Grassley predicted on Wednesday that if Schumer attempts to attach the tax credits from the stimulus law to the extenders bill on the floor, Republicans would reserve the right to respond with other tax amendments opposed by Democratic leadership.

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