Sen. Wyden’s problem

Sen. Ron Wyden (D-Ore.) has a problem.  The new chairman of the Senate Finance Committee brought his infectious enthusiasm for tax reform to the debate only to find that many in Washington, D.C. have already declared tax reform politically dead.  Fortunately for Wyden, tax reform is, to borrow a few lines from the classic movie The Princess Bride, “Only MOSTLY dead.  There's a big difference between mostly dead and all dead.  Mostly dead is slightly alive.”

“Slightly alive” is all the encouragement Wyden needs to continue his effort to remake what he’s called the “rotten, dysfunctional mess,” that is our tax code and he’s in the best position of his political career to breathe new life into this moribund issue.  His past work on tax reform, the relationships he’s forged with Republicans and fellow Democrats, and his deep understanding of the complexity of tax reform are the trifecta necessary to make something happen.

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The introduction of a comprehensive tax overhaul by House Ways and Means Committee Chairman Rep. Dave Camp (R-Mich.) late last month sparked as much debate over its fate (dead on arrival in the Senate) as its function.  But Wyden’s best opportunity may rest with the realization that, while comprehensive tax reform may not be in the cards this year, partial reform is possible.

Wyden certainly has the credibility.  He earned it over the years he pursued tax reform with anyone who would listen.  He worked with then-Senator Judd Gregg (R-N.H.) from 2008 through 2010 to develop and introduce a bipartisan tax reform proposal that the Los Angeles Times called 2010’s ‘most talked about idea.’ When Gregg retired in 2011, Wyden and his ideas gained further credibility as he and Sen. Dan Coats (R-Ind.) pursued a nearly identical bipartisan proposal.

He also has the political savvy to get things done.  During his tenure as chairman of the Senate Energy and Natural Resources Committee, Wyden ushered nearly 90 bills through his committee, a remarkable feat given the Senate’s larger paralysis.  Who’s to say this record of success cannot be replicated in his new chairmanship?

One such area of success might be education tax incentives.  The current smorgasbord of tax deductions and credits for education is overly complex and costly to administer.  Camp’s proposal contemplates consolidating these incentives into a single, substantive tax credit that could benefit many more middle-income families than the current tax code.  There has already been an overture by Camp to act on education tax policy separately; Wyden’s buy-in could lead to action in both chambers of Congress.

Congressional aides say the Earned Income Tax Credit (EITC) is also a potential candidate for bipartisan reform.  The EITC, a refundable tax credit, provides significant tax relief to low-income workers and encourages recipients to grow their income within established guidelines.  But the Internal Revenue Service estimates up to one-quarter of the nearly $62 billion in EITC payments in fiscal year 2012 were paid in error.  Improved anti-fraud measures would save the Treasury billions of dollars each year and those savings could be plowed back into the program to enhance benefits and strengthen work incentives.

Then there’s corporate tax reform.  Republicans and even the White House recognize that America’s corporate tax rate, the highest in the developed world, is stifling job creation and needs to be reduced; the figure for a competitive corporate tax rate hovers around 25 percent depending on who you talk to.  Lowering the tax rate, coupled with a hybrid international tax system and sensible measures for broadening the corporate tax base, could be the recipe that attracts enough Democrat and Republican support for passage.

Critics of partial tax reform may pooh-pooh the idea as tinkering around the edges but it also prompts the question of whether some improvements to the tax code are better than none at all.  Wyden is too smart to assume an all-or-nothing approach to tax reform and if he chooses to use his chairmanship of Senate Finance to advance a partial success, it could pave the way for a larger overhaul in a future Congress.

Carter manages government relations for Emerson, a diversified global manufacturing and technology company based in St. Louis, Mo.  He previously served as an aide to Sen. Judd Gregg and helped develop the Wyden-Gregg tax reform proposal.