Senate takes 'blank slate' approach on tax reform

Friday, June 21, 2013, Vol. 37, No. 25

WASHINGTON (AP) — The top Democrat and Republican on the Senate's tax writing committee said Thursday they're starting with a "blank slate" approach to tax reform that envisions stripping the code of every single tax break as a setup to a debate over which ones to add back in.

Chairman Max Baucus, D-Mont, and Sen. Orrin Hatch, R-Utah, say any tax breaks should be restored only if they "grow the economy, make the tax code fairer" or promote some other important policy objective.

Breaks like tax-free retirement accounts and the home mortgage interest deduction would probably be favored to survive but special interest favors for individual industries face longer odds.

The idea is that ridding the tax code of many tax breaks would allow lawmakers to lower tax rates across the board for individuals and businesses.

Since the tax code was last reformed in 1986, lawmakers in both parties have cluttered the law with tax breaks and credits that people on all sides say has produced a code that is way too complex and inefficient and acts as a drag on the economy. Various tax breaks known in Washington-speak as tax expenditures cost the U.S. Treasury more than $1 trillion a year.

"Since then, the economy has changed dramatically and Congress has made more than 15,000 changes to the tax code. The result is a tax base riddled with exclusions, deductions and credits," Baucus and Hatch said in a letter to their colleagues. "Each year, it costs individuals and businesses more than $160 billion to comply with the tax code. The complexity, inefficiency and unfairness of the tax code are acting as a brake on our economy."

But tax reform is easier said than done. It has bedeviled Congress for years and promises to entangle lawmakers in myriad fights among and between special interests.

Furthermore, there is the question of whether to increase the amount of tax revenue brought in to address the budget deficit -- as Democrats insist -- or match the amount of revenue that the current code brings in, as most Republicans want. A broader budget deal has proven elusive, however, as Democrats have resisted cutting expensive benefit programs that Republicans say need to be addressed if they are to even consider higher revenues.