Tax reform more likely after ‘fiscal cliff’ agreement, say House Republicans

GOP tax-writers in the House say the “fiscal cliff” agreement has made them more confident that a tax overhaul can be passed in 2013 that lowers rates without bringing in more money to the government.

The law that President Obama signed this week allows the top tax rate to rise back to 39.6 percent, locks in rates long-term and resolves longstanding problems like the Alternative Minimum Tax.

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Those changes give policymakers on both sides of the aisle a firmer starting place for tax reform discussions. Officials had been facing several different revenue pictures, or baselines, that varied wildly depending on the fate of the George W. Bush era tax rates, which expired at the end of 2012.

The fiscal cliff deal gives lawmakers a single revenue baseline to work from, making it far more likely that an ambitious rewrite of the tax code can begin.

"I think it's important that we got the permanent tax policy, because that lets us pivot to comprehensive tax reform, which is so important for growth and jobs,” Rep. Dave Camp (R-Mich.), the chairman of the House Ways and Means Committee, told Bloomberg Television’s “Political Capital.”

Rep. Kevin Brady (Texas), another senior member at Ways and Means, said the rate extensions brought the certainty that Republicans have long sought in tax policy.

“It removed a bunch of distractions, and tied up a lot of loose ends,” Brady told The Hill.

But while the end-of-year deal might have made a tax revamp easier, Republicans acknowledge that there are high hurdles ahead.

Having helped pass the kind of rate hike that they opposed for years, GOP lawmakers say that they will stand firm against any Democratic push for increased tax revenues in a revamp of the code.

“We've now done the revenue piece,” said Camp, who has pledged to pass a tax reform bill out of his committee in 2013.

But President Obama and other leading Democrats have said the $600 billion in new revenue from the tax deal is only start, and want new revenues on the table in the next fiscal clashes.

The looming fights over entitlement reform and the debt ceiling — coupled with already bruised feelings from the fight over the fiscal cliff — have some lawmakers doubting where there will be the needed buy-in from both sides to achieve tax reform.

“Clearly, having presidential leadership on any big issue makes it a heck of a lot easier to get done,” Rep. Patrick Tiberi (R-Ohio), the chairman of the Ways and Means subcommittee on taxes, told The Hill. “Whatever it is.”

“I’m going to concede to you that we don’t have faith in this president to lead on anything,” added Tiberi, who is a key ally of Speaker John Boehner (R-Ohio). “I’m saying it still can be done with key Democratic leadership in the legislature.”

The debate over tax reform will continue to heat up in a year where the majority of taxpayers will face higher bills than they did in 2012, due to the tax rate increase for annual family income over $450,000, the expiration of the payroll tax cut and other provisions.

The average tax increase for households making seven figures is projected to be more than $170,000 this year, according to the Tax Policy Center. Households making between $200,000 and $1 million a year will also pay thousands more on average, according to the tax center’s estimate.

At the same time, the vast majorities of middle-class taxpayers — around eight in 10 of those making between $40,000 and $50,000 a year — will also face a higher bill in 2013. The average increase for those making between $50,000 and $75,000, for instance, will be almost $1,000.

Some Democrats have said that the structure of the cliff deal — using rate increases to raise revenues instead of eliminating tax preferences — would make tax reform discussions easier.

The deal also extended a wide array of corporate tax breaks that will likely be discussed in any horse-trading over tax reform.

“The more revenue is raised with rate increases, the easier it is to do tax reform next year,” Sen. Max Baucus (D-Mont.), the chairman of the Finance Committee, told reporters last month as the fiscal cliff deal was being hashed out. “On the other hand, with tax expenditures upfront, then it is more difficult to do tax reform next year.”

But Tiberi said that he did not believe that passage of the “extenders” corporate tax package would be much of an aid to tax reform. Some outside observers also have expressed concern that lawmakers don’t have a mechanism to force them to act, after Congress needed a deadline to push through measures like the fiscal-cliff deal.

“Lawmakers will always put off decisions rather than making them,” said Steve Ellis of Taxpayers for Common Sense. “Of course, having the extenders in the baseline gives you some offset, but considering they technically expire, it isn't much of one.”

But Brady said that sawing tax reform off from discussions over entitlement reform and a grand deficit deal could actually help tax reform’s prospects by making it stand or fall on its own merits.

The Texas Republican also said that, while the GOP remains frustrated with the White House, Obama has said previously he wants tax reform and remained hopeful the two sides could work together.

“This will give them an opportunity to step forward,” Brady said. “You know, it’s a new session, and a new second term, so I don’t want to prejudge.”

--Peter Schroeder and Erik Wasson contributed.