Wyden-Coats reform bill falls out of favor with tax groups

A little more than a year ago, the anti-tax activist Grover Norquist gave a qualified endorsement to bipartisan tax reform legislation from Sen. Ron Wyden (D-Ore.) and then-Sen. Judd Gregg (R-N.H.).

The bill, he said, “has more good than bad elements, and can be a positive starting point toward meaningful tax reform efforts.”

But last week, when Wyden teamed up with Sen. Dan Coats (R-Ind.) on an update of that legislation, Norquist’s Americans for Tax Reform roundly panned it, saying it “fails many conservative tests of fundamental tax reform.”

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As it turns out, A.T.R. is not alone in being not as enamored with this year’s version, in ways that could further underscore the difficulties in enacting a serious tax overhaul.

Americans for Tax Reform and the Tax Foundation, for instance, have both expressed a variety of reasons for their doubts about the Wyden-Coats legislation. But one common thread between the two groups is the belief that what may have passed muster in 2010 may no longer be good enough in 2011.

“They’re not moving the debate along this year,” said Scott Hodge, the president of the Tax Foundation, adding that bolder options had come from both President Obama’s fiscal commission and the House Republicans’ 2012 budget. “Perhaps they should be given credit for moving it along a year ago. But it looks like, by comparison, they’re not advancing the ball anymore.”

But Gregg, who left the Senate this year after 18 years, dismissed that idea, noting that Erskine Bowles and Alan Simpson, the chairs of the president’s debt panel, had said they had modeled their tax reform plan after Wyden-Gregg. 

“Simpson-Bowles is Wyden-Gregg on steroids,” Gregg said in an interview, adding that the bipartisan Senate plan “has been embraced on both the left and the right. I really think it’s a document that has significant credibility.”

The Wyden-Coats legislation, which dropped as policymakers on both sides of the aisle have called for a tax reform push for months, would slash corporate taxes, from a top current marginal rate of 35 percent to a flat 24 percent. It would also install three tax brackets – 15 percent, 25 percent and 35 percent – and ditch the Alternative Minimum Tax, while also eliminating some tax breaks and loopholes. 

The two senators started selling their legislation last week, calling it a serious proposal that would help spur job growth and the sort of bipartisan partnership that could be duplicated on a host of issues. 

“We think the path forward to actually getting it done – and making sure that 10 years from now, we’re not tied to this clunky, anti-growth system – is to do it in a bipartisan way,” Wyden said last week at a Heritage Foundation event. 

Ryan Ellis of Americans for Tax Reform, who posted a laundry list of his issues with Wyden-Coats last week, said the measure basically had two admirable qualities: the elimination in the A.M.T. and the steep reduction in the corporate tax rate. 

And what has changed in the last year, Ellis added, is that there is now much broader agreement that the corporate rate – which is among the highest in the developed world – needs to come down. 

“When Gregg-Wyden came out, it was a big deal to have Ron Wyden acknowledge the corporate rate was too high,” Ellis said. “Now, we’re not getting as much for our side.”

Both Hodge and Ellis also took issue with the plan for having separate top rates for corporations and individuals, noting that many small businesses pay their taxes through the individual code. Meanwhile, the House GOP’s 2012 budget proposal, crafted by Rep. Paul Ryan, installs top rates of 25 percent in both the individual and corporate codes, though it does not go into a lot of detail on which tax loopholes it would target.

For their part, the two senators have indicated that, if anything, their bill has become more conservative this time around, after adding a measure to allow multinationals to bring offshore profits to the U.S. at a reduced tax rate and retaining a provision on intangible drilling costs that helps the oil-and-gas industry. 

And a spokeswoman for Wyden added that that it would be difficult to bring the top individual rate down below 35 percent without raising taxes on the middle class, in large part because it would be unlikely to get lawmakers to agree to dump long-held credits and deductions in areas like mortgage interest and health care. 

“The goal has to be what do we need to do to get something done that is seen overall as critical and important to getting a more fiscally sound America,” Coats told The Hill. “So it’s a question of playing politics or trying to enact a policy.”

Hodge at least also acknowledged that criticism over Wyden-Coats illustrated the difficulty in turning general statements of praise for tax reform into an actual detailed plan. 

“I know it sounds like I’m dumping all over them,” said Hodge, whose group has also called for, among other things, a lower corporate rate and a simpler tax code. “But they do need to be given credit for, if nothing else, adding to the chorus that the tax code needs to be fundamentally overhauled.”

Curtis Dubay of Heritage – who released an analysis last year largely praising the Wyden-Gregg legislation – sounded a similar note on both the need for tax reform proposals to add to the debate, and how detailed proposals can open themselves up for deconstruction. 

“From a conservative perspective, unless it’s from us, there’s going to be aspects we like and those we don’t,” Dubay said. “I’m just glad I’m not a politician and can sit on the sidelines and say things like the corporate tax rate needs to come down.”