Tax Reform Moving, Will It Happen?

Today, Senate Finance Committee Chairman Max Baucus of Montana, a man with extreme passion for enacting comprehensive tax reform before he retires in 2014, released the final piece in a series of tax reform discussion drafts aimed at spurring cooperative proposals to help reform America’s complicated and broken tax code. Despite the naysayers – and there are no shortage of them as it relates to tax reform’s feasibility – the Senator’s ability to put something together amid the disaster that is the United States Congress reflects significant progress toward the goal of comprehensive tax reform, which could in addressing the country’s deep fiscal issues and unlock the full potential of the American economy.

In closing loopholes and deductions – together called “tax expenditures” – it could also help put $1.3 trillion of lost revenue back into the federal government’s coffers. Given my involvement with the Campaign to Fix the Debt and my belief that the debt, despite undeniable short term progress made on deficits, is still a very real problem looming large over our children’s future, this is big news. In a nut shell, I think tax reform is a necessity because it can address the debt without addressing the more hotly debated, hot-button topics like entitlement reform. In other words, sure, there are stark differences in approaches to tax reform, even between the very moderate Senator Baucus and the equally moderate (for a Republican) Representative Dave Camp – who is working on a parallel track for tax reform legislation in the house – but I believe those differences are ultimately more navigable than raising the age for Social Security or means testing Medicare.

Also, I believe this is a common sense issue that people – real people like those here in the Twin Cities – can grasp and rally behind to support. On both the corporate and individual sides of the tax code, perverse incentives encourage businesses and individuals to make decisions based on how to best minimize tax liability, rather than on ways that would benefit the overall economy. All of the quirks and carve-outs in the code distort the economy – locally and nationally – and create a system which is overly-complicated and is rightly viewed as unfair to business owners large and small. But comprehensive and pro-growth tax reform could alleviate much of this by broadening the tax base lowering marginal rates. The fact that it would raise revenues for the federal government and lower the deficit is an added benefit.

I have written on this topic here a few times, but with a firm landmark to now put it up against, I believe that “pro-growth” part of the tax reform discussion is essential. As we can’t simply cut ourselves out of the fiscal hole we’re in, we can’t tax ourselves out of it, either. The need to unleash growth is a critical reason for Congress to undertake tax reform – and it is why tax reform will be an essential part any comprehensive deficit-reduction plan.

While tax reform that increases federal revenue may be a hard sell for some on Capitol Hill (read: Republicans), it seems as if it may very well be the key to unlocking a comprehensive deficit-reduction deal, one that also reins in wasteful and low-priority spending and reforms our entitlement programs to make sure they are solvent for those who need them most in the decades to come.

While I may sound like a broken record – that is what is needed. And this is what should be keeping us up at night. It is not the wonky policy issues or specifics regarding reforms – it is the need for some reform, preferably significant reform, which will leave our children on solid ground.

The campaign put out a statement today worth noting that echoes this:

“The Campaign to Fix the Debt commends Senator Baucus for his continued commitment to comprehensive tax reform,” said Maya MacGuineas, head of the Campaign to Fix the Debt. “The release of these thoughtful discussion drafts is an important step forward in the tax reform process, and reflects the understanding that real reform will require making tough choices. The Campaign looks forward to working with Chairman Baucus, Chairman Camp, and other Members of Congress in the coming weeks and months to develop a simpler and fairer tax code that broadens the base, lowers rates, promotes growth and competitiveness, and reduces the deficit.”

Indeed – now is the time. Thank you Maya for pointing this out and thank you for Sen. Baucus for sticking to your guns. Now the rest of the crew in Congress needs to follow suit.