McConnell douses tax reform talk

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The House’s top tax writer on Tuesday ran into roadblocks from his own party the day before the release of a long-awaited reform plan.

Senate GOP Leader Mitch McConnell (Ky.) poured cold water on tax reform’s prospects, insisting that the differences between Democrats and Republicans were too great to overcome. He suggested the GOP would be better served waiting until after the midterm elections, when his party might have majorities in both chambers of Congress.

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“I think we will not be able to finish the job, regretfully, in 2014,” McConnell told reporters on Tuesday.

“Now, if we had a new Republican Senate next year, coupled with a Republican House, I think we could have at least a congressional agreement that this is about getting rates down and making America more competitive, not about giving the government even more revenue.”

While McConnell has previously expressed doubts about tax reform’s prospects, his Tuesday comments were notable for coming hours before House Ways and Means Committee Chairman Dave Camp (R-Mich.) was expected to unveil his draft plan.

Senate Majority Leader Harry Reid (D-Nev.) on Tuesday also gave little chance to tax reform this year, marking a rare area of agreement between him and McConnell.

And House GOP leaders have taken, at best, a hands-off approach in recent months to tax reform, with many seeing the release of a draft bill slashing popular incentives as politically reckless in an election year.

As McConnell suggested, Republicans are widely expected to gain Senate seats in November, with a chance to take control of the chamber — giving the GOP even more incentive to wait it out.

Speaker John Boehner’s (R-Ohio) lieutenants signaled Tuesday that top Republicans wouldn’t embrace tax reform anytime soon.

“It’s a talking paper. It is not a policy initiative,” said Rep. Pete Sessions (R-Texas), the chairman of the House Rules Committee, who ran the House GOP’s campaign arm in 2010 and 2012. “It is not the Republican Party plan. We’re not going to run to it. We’re not going to run away from it. We’re going to understand it.”

The current National Republican Congressional Committee Chairman Greg Walden (Ore.) also downplayed the release of the draft, stressing that Republicans knew tax reform was a long-term process.

“It’s a discussion draft. And I think a lot of people are ready to have a discussion about tax reform. I’m looking forward to see it myself,” Walden told The Hill. “It’ll start the discussion.”

Boehner is not including Camp in the Republican leadership’s weekly press conference on Wednesday, and Senate hopeful Rep. James Lankford (R-Okla.), a member of leadership, said he was “a little surprised” the tax plan was coming out during a week the party had hoped to devote to a good government and anti-IRS message.

“In all likelihood, that will suck the oxygen out of the rest of the week,” Lankford said of the Camp proposal.

Camp is scheduled to officially roll out his draft, which would slash individual and corporate tax rates while eliminating or paring back incentives, on Wednesday afternoon.

House Republicans have called for reducing the individual and corporate rate to 25 percent. Media reports and the K Street rumor mill have suggested Camp reaches that goal on the individual side by implementing a surtax on income over $450,000 a year for certain taxpayers, and the Ways and Means Committee chairman would exclude some capital gains and dividend income from taxation.

In an op/ed in the Wall Street Journal posted on Tuesday night, Camp did not mention either the bank tax or the surcharge on the wealthy. But he said his plan would "clean up" the so-called "carried interest" provision that allow many private equity firms to get a lower investment tax rate instead of the higher marginal income rate. Other provisions Camp cited were the elimination of breaks for corporate jet owners and a loophole famously used by former Sen. John Edwards (D-N.C.) to avoid paying payroll taxes on his small business.

"The tax code changes in my plan are not intended as a means of raising revenue," Camp wrote. "If loopholes are closed, Americans should get the benefit by way of lower rates."

Camp wrote that 99 percent of taxpayers would face a top rate of 25 percent, and he said that a projection by the Joint Committee on Taxation found his plan would create nearly two million jobs and generate $700 billion through economic growth over the next decade, if enacted.

Lobbyists and analysts are also expecting a tax on the largest banks — those with assets exceeding $500 billion — and also potential changes or limits to the mortgage interest deduction, the state and local tax deduction and certain retirement accounts. 

Camp has cast his plan as a challenge to the special interests and to those policymakers who are willing to accept the status quo.

But the lead-up to the release of Camp’s plan also shows the challenge of turning the abstract idea of tax reform, which many lawmakers and lobbyists like, into a policy proposal that creates winners and losers.

Outside advocates, for instance, quickly ramped up to decry potential proposals in the draft.

The American Public Power Association, concerned about the tax treatment of municipal bond interest, said a surtax “would be unprecedented, would likely be unconstitutional, and would only serve to shift the costs of a federal tax cut onto the backs of state and local governments.”

Camp’s challenge after the release of the draft will be to see if he can sell the plan to the GOP conference. The Michigan Republican is likely in his last year with the Ways and Means Committee gavel, and his draft could be used as a template for further efforts on tax reform as well.

On that front, at least, he found a supporter across the aisle on Tuesday.

“I think we should have tackled tax reform years ago, but it will be extremely difficult with the obstruction we get here from Republicans on virtually everything,” Reid said Tuesday. “We should be doing something that should have been done years ago. I think that Camp is right coming forward with a piece of legislation.”

This story was posted at 3:23 p.m. and last updated at 10:50 a.m. on Feb. 26.