Tax reform a tough sell even at a moment of deficit obsession

With deficit reduction on the lips of policymakers all around Washington, tax reform is proving to possibly be a tough sell for those searching for long-term solutions.

As a bipartisan group of six senators continue to work to craft a broad deficit reduction plan, some top Republicans in their chamber have signaled that, at the very least, it would be difficult for them to back an approach that would use increased tax revenue.

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Sen. Orrin Hatch (R-Utah), for instance, said in a late February speech that, while he wanted to look into revamping the tax code, spending cuts should be the sole tool used to narrow deficits.

“Separately, we must promote tax reform,” said Hatch, the ranking member of the Senate Finance Committee. “If we try to mix the two, we risk walking down the road to a back-door tax increase.”

For its part, the so-called Gang of Six has been using the plan formulated by President Obama’s fiscal commission as a guide as it tries to craft a deficit reduction measure.

The debt panel proposed using tax revenue for about a third of its $4 trillion in deficit reduction – recommending, among other things, rolling back many tax breaks, repealing the Alternative Minimum Tax and simplifying the tax code. The commission also suggested spending cuts and reforms to entitlements like Medicare.

The discussion over tax reform on Capitol Hill has not always been linked to deficit reduction in recent months, as the Obama administration has also called for overhauling the corporate tax code in a way that does not add to the deficit.

But while the general idea of reforming the tax code has received support from officials on both sides of the aisle, lawmakers have also expressed skepticism that a tax overhaul could be passed in the current Congress.

Meanwhile, top Democrats tried to start broadening the Capitol Hill conversation about deficit reduction last week, with Sen. Chuck Schumer (D-N.Y.) saying the focus of late on discretionary spending was like swimming in the shallow end of a swimming pool. Schumer, who leads the message crafting efforts for Senate Democrats, also called for looking at entitlements and tax reform.

Sen. Kent Conrad (D-N.D.), the chairman of the Budget Committee and a member of the Gang of Six, recently dismissed the idea that tax reform should not be part of getting the nation’s books in order, noting that the president’s panel and other bipartisan fiscal commissions had pushed for tax code changes.

“Everybody’s entitled to their own opinion around here, but I don’t see how you get a comprehensive plan without tax reform as part of it,” Conrad, who also was a member of Obama’s fiscal commission, said last week after a Budget Committee hearing. “All of the commissions concluded it’s got to be a centerpiece of a comprehensive solution."

Still, Sens. Saxby Chambliss (R-Ga.) and Mark Warner (D-Va.), both members of the Gang of Six, have noted that it’s a tough step for a Republican to talk about increased tax revenues, much the way it’s difficult for a Democrat to raise the issue of entitlements. (The two do often add that the shared pain of the debt panel’s pain is part of its appeal.)

And Sen. Jeff Sessions (R-Ala.) said in a recent interview that, while he would keep an open mind about any deficit reduction plan that included increased tax revenue, he would also “challenge” any proposal that put taxes on the table. 

“Taxes: they’ll be a bitter pill for me, but we have got to get this country on the right path,” Sessions, the ranking member of the Senate Budget Committee, told Bloomberg Television.

There is also the question of whether there is enough time to craft a tax reform plan to include in a deficit reduction measure. The Gang of Six has kept their negotiations fairly close to the vest, but Warner said Sunday that their initiative might need to be released this year to make sure the issue doesn’t get punted past the presidential election.

“We may not have that long a time before the financial markets say we’re going to either no longer want to buy American debt or charge such a higher interest rate on it that it would have a dramatic negative effect on the economy,” Warner said on “Fox News Sunday.”

The last successful overhaul of the tax code, which occurred a quarter-century ago, took several years, as officials like Treasury Secretary Timothy Geithner have noted.

Rep. Chris Van Hollen (D-Md.), the ranking member of the House Budget Committee, said one way to deal with that would be to put together a skeletal tax reform proposal that spelled out which rates should be in the code – but not much else.

“How you work out the details can be very controversial,” Van Hollen said in an interview. “For that reason, it would probably be difficult to spell out in detail this year how you would put together a tax reform package.”