House Republicans are calculating how to balance the push for a broad tax reform package with their desire to use the code to spur economic growth in the short term.
With the economy continuing to sputter, Rep. Eric Cantor (R-Va.), the House majority leader, laid out a growth package last week that included a proposed 20 percent deduction for small businesses.
But the Michigan Republican has kept other tax proposals embraced by Republicans, like a corporate tax holiday for offshore profits, at arm’s length this year, signaling that he doesn’t want to take any momentum away from tax reform.
The GOP search for a path forward illustrates the questions facing top officials from both parties, as they attempt to lay the groundwork for the sort of tax overhaul that eliminates tax credits and deductions, lowers rates — and, if history is any indicator, is a years-long process.
In his recent policy memo, Cantor signaled that more immediate tax initiatives would not distract from the longer-term goal of comprehensive tax reform. Details for the proposed small business tax relief, which would allow owners to take a deduction equal to 20 percent of their earnings, still need to be worked out. But the idea is modeled after a plank in Camp and Cantor’s alternative to the 2009 stimulus.
“All House Republicans share the goal of broad, pro-growth tax reform that broadens the base and lowers the rates,” added Brad Dayspring, a Cantor spokesman. “That takes time, and with America facing a jobs crisis, the small business tax relief is something we can do in the interim to grow the economy and jobs.”
A Ways and Means spokeswoman, meanwhile, pointed out that Camp has long stressed that any time is a good time for tax reform and that the chairman remains committed to revamping the tax code.
“However, he has never said that we cannot do things in the short term that are effective and beneficial for families and employers,” the spokeswoman said, adding that the small business tax deduction “will help create a climate that encourages job growth.”
President Obama is set to unveil a jobs package of his own this week, after the Labor Department reported Friday that the unemployment rate remains at 9.1 percent and that the economy created a net zero jobs in August.
But the sort of tax ideas the president is expected to talk up — an extension of the current payroll tax holiday and perhaps a tax break for companies that hire new employees — are even more targeted than the GOP’s small business deduction.
Tax reform is also expected to be a major topic of discussion for the deficit-reducing supercommittee, which is tasked with coming up with at least an additional $1.2 trillion in deficit cuts over roughly the next 11 weeks.
Still, policymakers on both sides of the aisle have talked up other more interim tax proposals in recent months, even as Camp and his Senate counterpart, Max Baucus (D-Mont.), the chairman of the Finance Committee, have aimed their focus on broader reform.
Already this year, Cantor and prominent officials in both parties have thrown their support behind allowing multinationals such as Cisco, Oracle and Google to temporarily bring profits stored offshore into the U.S. at a vastly lowered tax rate, another move designed to give the economy a well-needed jolt.
But Camp, while noting that he wants to find ways for those overseas profits to come to the U.S., also has appeared cooler to the idea of a one-time holiday than he has to the new deduction for small businesses.
Instead, the Michigan Republican has said that he wants a longer-term fix. Critics of a previous holiday, enacted in 2004, have also questioned whether it was a successful job creator, asserting that much of the repatriated funds went to dividend payments or stock buybacks.
“Repatriation is an important idea,” Camp said at the May rollout of a GOP jobs package. “I'm for it. I think it's also going to be an important part of fundamental tax reform.”
Caroline Harris, the chief tax counsel for the U.S. Chamber of Commerce, said it was no surprise that lawmakers were wrestling with narrower tax proposals, noting that the last successful overhaul of the tax code, in 1986, essentially took three years from start to finish.
With that in mind, Harris was skeptical that the supercommittee had enough time to hammer out a tax reform package. Camp and Baucus, both members of that panel, have also suggested that they would like to keep tax reform and deficit reduction separate discussions, though Camp did indicate recently that the supercommittee could set a deadline for a tax overhaul.
“Just because Republicans are responding with their own targeted tax incentives doesn’t discount or lessen the need for tax reform,” Harris said. “I think the realization is that we’re not going to do fundamental tax reform in a matter of weeks.”