By Bernie Becker and Erik Wasson - 07/21/11 10:00 AM EDT
Lobbyists and interest groups are closely monitoring proposals from the Senate’s Gang of Six to overhaul the tax code and are fearful that popular credits and deductions could be targeted.
The group of three Democrats and three Republicans released a $3.7 trillion deficit-reduction plan to great fanfare Tuesday. President Obama cheered the proposal as a “significant step,” and it instantly became a factor in talks to raise the $14.3 trillion debt ceiling.
Interested parties say their lobbying efforts won’t move into full throttle until they know more.
“We are not going to respond to outlines with huge holes in them,” Blair Latoff, a spokeswoman for the U.S. Chamber of Commerce, said in a statement. “We will wait until a plan comes together that will be considered in Congress, rather than jump up and say something about every ‘float the balloon idea’ that pops up.
Under the Gang of Six proposal, the Senate Finance Committee would have six months to complete a tax-reform package that lowers individual and corporate tax rates, switches to a so-called territorial system and ditches some tax credits and deductions.
On Wednesday, some business-friendly groups embraced that push to lower rates and limit taxation on corporate profits made abroad, while progressive groups and unions slammed the proposals for encouraging companies to shift jobs overseas.
The Gang’s framework also proposes to “reform, not eliminate, tax expenditures for health, charitable giving, homeownership and retirement, and retain support for low-income workers and families.”
Some of the most popular, and expensive, tax expenditures in the code would fit under that umbrella. The nonpartisan Joint Committee on Taxation, for example, estimates that a tax exclusion for employer contributions to healthcare would cost the government $659 billion in revenue between 2010 and 2014, while the deduction for mortgage interest would total $484 billion. JCT also projects that three separate expenditures relating to retirement contributions could add up to roughly $597 billion over that time frame.
Given the Gang’s goal of wringing $1 trillion out of the tax code to rein in deficits, the Finance panel likely would have to take a close look at those expenditures to meet its targets — a prospect that worries some interest groups.
Bill Rys, the tax counsel for the National Federation of Independent Business, said the plan was too sparsely detailed to judge its effects on health benefits and retirement accounts. Generally speaking, the government allows people to defer paying taxes on contributions to 401(k)s, and taxing them could mean employers have to pay more in payroll taxes.
Rys added that he was glad the Gang was looking at both the individual and corporate tax codes, as many small businesses pay taxes as individuals.
The AARP is not yet focused on possible changes to retirement tax breaks, a spokeswoman said. But the powerful seniors group did blast out a statement slamming the Gang’s proposed cuts to Social Security and healthcare entitlements.
Meanwhile, any push to reform the mortgage interest deduction would likely consider whether to limit its use to primary residences.
Jerry Howard, the chief executive of the National Association of Home Builders, told The Hill that industries affected by that sort of change have been gearing up for a fight for nine months, ever since the president’s fiscal commission considered doing away with the tax break altogether.
Howard also called fiddling with the mortgage deduction absurd, saying it would devastate the housing sector at a time when economists already believe it is weighing down the economic recovery.
“Proposing this shows no intuitive feel for the economy at all,” he said. “This is a horrible idea.”
Still, Howard added that he did not see the Gang proposal advancing very far, at least this year. A National Association of Realtors spokeswoman also said that her group did not have an official position on the plan, because it lacked details.
“Politically, we don’t see this any time soon.” Howard said.
But over in the charitable world, Steve Taylor, a United Way Worldwide vice president, was concerned that the Gang’s work was gaining traction.
Groups in that sector were already on edge, with President Obama having sought to curtail the deduction for charitable giving in three consecutive budgets and the fiscal commission seeking to make changes to it as well.
In a Wednesday letter to Gang of Six members, Taylor reiterated charitable groups’ view that policymakers should not reduce incentives for giving during a down economy.
“We are very concerned about a resolution that would come at the expense of people who benefit from charitable services,” Taylor told The Hill.
As for the corporate tax code, such groups as the Business Roundtable responded positively to the Gang’s idea of installing a single corporate tax code of between 23 percent and 29 percent, down from a current top rate of 35 percent. The proposal would essentially subject only corporate profits made in the U.S. to American taxation.
But such groups as the AFL-CIO and Citizens for Tax Justice — not to mention Sen. Bernie Sanders (I-Vt.) — blasted the proposed changes to overseas profits.
In a statement, Citizens for Tax Justice said the current system, which basically allows corporations to defer paying taxes on foreign profits until they are brought to the U.S., already encouraged job-shifting and the use of tax havens.
“There would be even more incentives for corporations to do both these bad things under the ‘territorial’ tax system promoted by corporate lobbyists and included in the Gang of Six plan,” the group said.
Still, CTJ’s Steve Wamhoff said, while the gang’s proposal was part of a worrying trend on corporate taxes, he was skeptical it would be ready soon.