K Street worries over spread of IRS scandal amid push for tax reform

The uproar over the Internal Revenue Service targeting of Tea Party groups has stirred jitters on K Street over the prospects for getting tax reform done this Congress.

The uphill battle to simplify the complex tax code by winnowing tax breaks and lowering tax rates could take a step back if Democrats and Republican become consumed by the admitted IRS wrongdoing. 

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The question, lobbyists said, is how much time and resources the scandal ends up siphoning from the reform effort. If links to Obama administration appointees can be made, the problems at the IRS could mushroom.

The House Ways and Means Committee has set its first hearing on the matter for Friday, and the Senate Finance Committee has pledged to investigate as well. 

Pro-tax-reform lobbyists worry that any time spent dissecting the Tea Party targeting is time not spent on comprehensive tax reform — a project that demands lots of attention, scandal or no. 

And they note that there could be a limited window of opportunity for tax reform to be completed.

At the end of 2014, Senate Finance Committee Chairman Max Baucus (D-Mont.) will retire, and Ways and Means Chairman Dave Camp (R-Mich.) is set to exit the chairmanship due to term limits. 

Proponents of tax reform want to see a bill completed this year, setting the stage for action early in 2014 at the latest — before looming congressional elections dominate the schedule.

“If anything, the anticipated investigation of the IRS will possibly consume resources and energy that might otherwise be devoted to tax reform,” said a GOP lobbyist.

“There’s a limited amount of time, so anytime you’re doing other stuff instead of focusing, concentrating on tax reform, that doesn’t help,” said another tax lobbyist. 

The lobbyist added that a partisan rift could emerge if one party wants to pursue the IRS controversy more vigorously than the other.

“Obviously, it has the potential to poison the well if one side were to use this politically,” the lobbyist said. 

But despite K Street concern, Democratic and Republican committee aides were both confident Monday that the tax-writing panels can handle both tax reform and the IRS investigation. 

“This committee has pretty expansive jurisdiction and is used to having a lot going on simultaneously,” a House GOP aide said.

The scandal could even offer a silver lining. 

If the IRS actions require a legislative fix — such as criminalizing the targeting of political groups for tax audits — that could get wrapped into the tax reform measure and help attract some members to the reform effort.

“While I give Sen. Baucus kudos on calling for an investigation, I am not sure this issue has ‘legs.’ If it does and the chambers include IRS reform, it may pick up a few hesitant Tea Party-type members of Congress to support tax reform, who may not otherwise,” one lobbyist said. 

Pro-business lobbyists are also worried that the IRS-Tea Party issue could hold up tax treaties pending in the Senate. 

The treaties are supposed to end double taxation while facilitating information-sharing between governments. Sen. Rand Paul (R-Ky.) has objected to this increased information-gathering as a violation of privacy.

“The IRS scandal could prove his point that the IRS isn’t to be trusted and can abuse their power,” one lobbyist said.