K St. feeding frenzy expected from 'blank slate' tax reform

The “blank slate” approach that Senate tax writers announced on Thursday will unleash a frenzy of activity on K Street, lobbyists said.

Finance Chairman Max Baucus (D-Mont.) and the panel’s ranking member, Sen. Orrin Hatch (R-Utah), told their 98 colleagues to assume that even the biggest of tax breaks were out of the code, and then challenged them to make a case for their favored provision.

Senators only have until July 26 to get back to Baucus and Hatch, giving K Street shops little time to formulate their strategy for what one lobbyist dubbed the Full Employment for Tax Lobbyists Act of 2013.

A separate lobbyist said the wide-open debate could result in something resembling a food fight, as various groups sparred and jockeyed for position, hunting for lawmakers to make the case for them.

"You're going up against the entire world,” the lobbyist said. “There will be a ton of money spent on this."

In fact, while K Street responded to the announcement from Baucus and Hatch with a flurry of positive releases, lobbyists were also reluctant to speak on the record about the plan – underscoring the big stakes both on and off Capitol Hill.

Backers of the most popular big-ticket tax breaks – like the mortgage interest deduction and the exclusion for employee-sponsored health insurance – could be on safer ground, according to some on K Street.

But lobbyists also said that the monthlong spurt of action would pose a particular challenge to groups backing more under-the-radar tax breaks, or shops with a broader range of interests.

Some of those groups sprung into action just hours after Baucus and Hatch rolled out their letter to colleagues, at times backing the process while getting a word in for their favored item. The National Association of Federal Credit Unions, for instance, predicted that scrapping their federal exemption would have a devastating impact on the industry.

The charitable sector – which has been on defense for most of President Obama’s time in office – sounded similarly alarmed about its deduction, another expensive preference.

“The good that comes as a result of this deduction is strong justification for preserving it in our tax code,” Sandra Swirski, the executive director of the Alliance for Charitable Reform, said in a statement.

In their letter to colleagues, Baucus and Hatch acknowledge that the end goal isn’t to rid the code of every preference, and that trade-offs will be needed to get enough lawmakers on board with a full rewrite of the code.

“Indeed, we both believe that some existing tax expenditures should be preserved in some form,” the two wrote. “But the tax code is also littered with preferences for special interests.”

The two veteran senators essentially glossed over some of the key questions on reform – such as whether tax reform would raise revenues for deficit reduction, as Democrats want, or follow the GOP preference of pouring all the savings from eliminating tax breaks into rate reductions.

In fact, Baucus and Hatch’s letter doesn’t lay out a goal for reducing rates, currently as high as 39.6 percent for individuals and 35 percent for corporations. But the top tax writers do clearly tell their colleagues that adding tax breaks back into the code will leave less money for whatever their goal is, be it lower rates or increased revenues.

House Ways and Means Chairman Dave Camp (R-Mich.), who has himself called for a “blank sheet” approach to tax reform, applauded Baucus and Hatch’s efforts. “This significant step forward underscores that the Senate and House are on the same page as they work in a bicameral, bipartisan manner to fix our broken tax code,” Camp said in a statement.

Camp has called for lowering both the top individual and corporate rates to 25 percent, and has vowed to pass a reform bill out of committee this year.

House Democrats, who have stressed that they want to maintain progressivity in the code, left an afternoon meeting with senators saying they were fine with the Finance starting point. Senate Finance members, meanwhile, acknowledged they were about to be “bombarded,” as one lobbyist put it.

"It could be a very, very constructive way to decide what the right tax policy should be for this country,” Sen. Ben Cardin (D-Md.) told The Hill. “I think we're ready. We've been talking about this for a long time."

When asked if he had heard from any interest groups looking for his support for their preferred tax breaks, Cardin said, "Only reporters so far. But that will change!"

Hatch told reporters on Thursday that opinions from fellow Finance Committee members will likely take precedence, even though he and Baucus are looking for input from all senators.

"We're certainly going to give more emphasis to those on the committee," he said. "Everybody on the committee realizes that they're listened to and we want to work with them."

But lobbyists say that also presents a challenge in its own right for senators, especially if K Street or the media get wind of what tax breaks they’re going to bat for.

Key backers could push back on senators if they feel their priorities aren’t being tended to, as one K Street source said.

“It’s definitely risky,” the lobbyist said. “There’s going to have to be a lot of trust.”