Tax reform effort accelerates in House

The House Ways and Means Committee is expected to announce 11 separate working groups on tax reform as soon as Wednesday, a committee aide said.

Both Republican and Democratic members of the committee, led by Rep. Dave Camp (R-Mich.), would serve on the working groups, which will touch on a wide range of issues that have already been center stage in the tax reform and deficit-reduction debates.

The groups would not be charged with crafting recommendations or specific proposals. Instead, they would focus on fact-finding, and gaining a broader understanding of a dense tax code that now stretches to some 4 million words.

The 11 separate working groups will deal with manufacturing; small businesses and so-called pass-through entities; charitable and tax-exempt organizations; education and family benefits; energy; financial services; real estate; debt, equity and capital; income and tax distribution; international issues; and pensions and retirement.

Camp and the ranking Democrat at Ways and Means, Rep. Sandy Levin (Mich.), met last week to discuss the working groups. The panel has yet to announce the size of the groups or who will participate in them.

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The formation of the working groups underscores how badly Camp wants to reach a deal to revamp the tax code — a goal the Michigan Republican has called a top priority. The groups are also the latest effort to bridge the partisan gaps over taxes, with all sides agreeing that reform will likely need buy-in from both parties.

Washington last reformed the tax code in 1986, a bipartisan achievement that came after years of wrangling and which officials on both sides of the aisle say can be a template for the current reform debate.

The 1986 tax reform became part of the legacy for both President Reagan and several lawmakers who worked closely on the issue.

Camp recently released a draft proposal taxing complex financial instruments like derivatives that drew praise from both sides of the aisle. In 2011, the Michigan Republican released a framework that would limit the U.S. taxation of offshore corporate profits.

On the Senate side, Finance Committee Chairman Max Baucus (D-Mont.) has been meeting with members, and hopes to release a discussion draft or options paper on tax reform in the spring.

The working groups will also launch not long after President Obama said in his State of the Union address on Tuesday that “now is our best chance” for a bipartisan deal on tax reform.

Still, a number of large hurdles remain for tax reform.

Obama and many Congressional Democrats want to use tax reform to raise revenues for deficit reduction – something they say has broad support among voters.

“We should do what leaders in both parties have already suggested, and save hundreds of billions of dollars by getting rid of tax loopholes and deductions for the well-off and well-connected,” Obama said in the State of the Union.

On the other side of the aisle, GOP leaders and lawmakers believe reform should be revenue-neutral — that the revenues from scrapping tax breaks should be funneled into lower rates. Republicans also say they will not consent to further tax increases after the recent “fiscal cliff” deal allowed tax rates for the highest earners to rise.

“More spending and more taxes are not the answer to America's problems,” Camp said in response to Obama’s Tuesday address.

“I'll work with the President to close loopholes, but only if it results in hardworking taxpayers getting a simpler, fairer tax code and an economy with more jobs —that is real tax reform.”

The White House has also sounded more keen on revamping tax code for corporations and businesses. But Republicans note that many small businesses — also called pass-throughs — pay taxes through the individual code.

House Republicans have also said they are tired of taking tough votes, only to see the measures they pass die in a Senate controlled by Democrats.

With that in mind, Speaker John Boehner (R-Ohio) has said several times in recent weeks that his conference isn’t sure how to proceed on tax reform, even though Republicans are united in believing the tax code is a mess.

“There’s a debate going on about whether we can get to the kind of tax reform we want given the outcome of the election,” Boehner said. “We’d love to do tax reform,” Boehner told televison anchors on Tuesday, according to news reports.

“Lower rates for all, clean up the code, make it simpler. But why go through all that effort if it isn’t going anywhere or why go through that effort if the outcome would be unacceptable?”