By Alexander Bolton - 04/03/13 09:00 AM EDT
Senate Finance Committee Chairman Max Baucus (D-Mont.) is plowing ahead on tax reform despite growing friction with his Democratic colleagues and widespread skepticism about his chances for success.
Baucus broke with the Senate Democratic leadership in dramatic fashion late last month by voting against Senate Democrats’ budget plan, which calls for his committee to raise nearly $1 trillion in new taxes.
They argue Baucus will be able to persuade his leadership to compromise with Republicans later this year and accept a tax reform plan that would devote a portion of new revenues to lowering tax rates and a portion to deficit reduction.
A Democratic Finance Committee aide said the thorny question of putting revenues toward cutting the deficit can be decided at a later date, perhaps when Congress is debating an increase in the federal debt limit this summer.
“What to do with the revenues is not something they need to address at the first meeting. If you do that, you’re killing the whole thing before it gets out of the gate,” said the staffer. “Tax reform is not black and white. Tax reform is gray. It’s about finding compromise. Everyone can win in this.”
Senate Republican Leader Mitch McConnell (Ky.) and other leaders, however, have stated definitively that they will not raise taxes through a reform of the code.
The question that remains to be decided is whether Senate Majority Leader Harry Reid (D-Nev.) will let Baucus begin putting together a bipartisan tax reform package that raises far less revenue than what the majority of the Democratic Caucus supports.
There have been other signs of friction between Baucus, who is up for reelection in 2014, and the Senate Democratic leadership.
Baucus balked at language in the government funding measure passed by Congress last month that gave Customs and Border Protection authority to accept reimbursements from outside organizations for opening additional points of entry into the country.
Baucus also raised concerns over the funding measure for not providing more resources for the Office of the U.S. Trade Representative, according to Senate staffers.
Senate Democratic leaders did not intervene to defend Baucus’s jurisdiction, according to aides.
“I think it’s a mistake to infringe on the jurisdiction [of the Finance Committee] and I think it’s a mistake not to have the appropriate people handling this for us,” said Sen. Orrin Hatch (Utah), the ranking Republican on Finance, when asked about the jurisdictional disputes.
Some lobbyists wonder whether Reid is planning to take a more active role in crafting tax policy. He hired Cathy Koch, who formerly served as tax chief of the Finance Committee, as his chief adviser on tax and economic policy.
Baucus, meanwhile, lost two of his most trusted aides: former chief of staff Jon Selib and former Finance committee staff director Russell Sullivan.
Baucus views tax reform differently from Senate Democratic leaders. While the Montana Democrat has told Republicans he wants to move a bipartisan reform package, his leadership views it primarily as a vehicle to raise more revenues to help shield safety-net programs from cuts.
“He wants it to be bipartisan and so do I,” Hatch said of Baucus’s approach to tax reform. “It won’t happen if it isn’t bipartisan, I can guarantee you that.”
Leaders such as Sen. Charles Schumer (D-N.Y.), the Senate Democrats’ chief political strategist, see tax reform as the key to a balanced deal to reduce the deficit, closing tax loopholes for the wealthy and cutting mandatory spending programs.
Baucus rejected the leadership strategy last month when he voted against the Democratic budget, calling it “not sufficiently balanced.”
Political analysts and tax lobbyists predict Baucus will not back any reform package that increases tax levels without a prior bipartisan agreement paving its path to President Obama’s desk.
“I think there’s very little chance there’s going to be tax reform this year. It’s a very complicated issue and the parties are sharply divided on this. It’s extremely unlikely the House and the Senate will come to an agreement on the budget,” said Darrell West, director of governance studies at the Brookings Institution.
“Baucus is up for reelection and he won’t want to take any risks. He comes from a state that’s going to be challenging for a Democrat. He’s not likely to exercise leadership on this issue,” West said.
“He’s clearly in full reelection mode,” said a lobbyist tracking tax reform discussions in the Finance Committee. “There’s no earthly reason for him to go stepping on toes to put something out unless it can become law.”
Democratic aides on the Finance Committee, however, dispute claims that Baucus is hanging back on tax reform and does not plan to move a package.
The staffers say Senate Democrats need to be prepared if House Ways and Means Committee Chairman Dave Camp (R-Mich.) passes a tax overhaul package. They also note that Speaker John Boehner’s (R-Ohio) decision to reserve H.R. 1, the first bill of the new Congress, for tax reform shows it is a high priority in the lower chamber.
Gabe Horwitz, the director of the economic program at Third Way, a centrist Democratic think tank, said Camp could help Baucus’s mission to move a bipartisan tax reform package through the Senate if he can push such a proposal though the House.
But even moving revenue-neutral tax reform through the Republican-controlled House will not be easy, as competing special interests battle over what niche tax breaks are eliminated.
“There are a ton of pitfalls,” said Horwitz.
Lobbyists representing clients with millions or even billions of dollars in tax breaks at stake say Boehner designated H.R. 1 for tax reform as a personal favor to Camp, a longtime ally. Camp is term-limited as chairman and will have to step down from the post at the end of next year.
Lobbyists say the political environment is a lot different from 1986, when Congress last overhauled the tax code.
Then-President Reagan championed tax reform and “led the charge” on Capitol Hill with support from Democratic allies such as former Sen. Bill Bradley (D-N.J.) and former Rep. Dick Gephardt (D-Mo.), according to a lobbyist who worked on the issue nearly 30 years ago.