Don’t look for tax reform this year

Tax lobbyists increasingly think Congress will skip over far-reaching tax reform in 2010.

After nearly a year of debating reforms to the healthcare system and difficult final votes still to come, lawmakers may be reformed-out this year, the lobbyists said.


Democrats looking at a tough political climate are much more concerned with extending their own careers beyond 2010 than in using the year to tackle complicated and politically hazardous tax reform, the sources said.

This had been seen as the year when Congress might tackle tax reform, given the expiration at year’s end of tax cuts initiated by former President George W. Bush.

Last year’s budget heightened that sense when President Barack ObamaBarack Hussein ObamaBiden: Democrats' spending plan is 'a bigger darn deal' than Obamacare Harris stumps for McAuliffe in Virginia Biden to stump with McAuliffe Tuesday MORE included a score of proposed changes that signaled a huge shift in the way U.S. corporations would be taxed on their overseas profits.

A year later, business groups are still worried changes to the international tax code will be used to pay for other programs. But they don’t think they’ll see a broad tax reform bill.

“I think in general, trying to take on international corporate reform, it’s going to be really tough,” said Cathy Schultz, a tax lobbyist for the National Foreign Trade Council.

This doesn’t mean 2010 won’t be a busy year on the tax front.

The Senate left 2009 without extending a group of business tax cuts known as the extenders or the estate tax, which has expired for 2010. It plans on retroactively doing both.

Congress must also do something about the Bush tax cuts. Lawmakers are likely to extend the cuts for those with lower tax rates while allowing the tax hike to go into effect for those in the highest tax bracket. That will allow Democrats to run for election arguing they’ve provided tax relief to middle-class Americans while punishing the rich.

It means the lowest 10 percent bracket will stay alive, and that the 39.6 percent tax on the highest bracket will return.

“That’s the path of least resistance,” said Clint Stretch, managing principal of Deloitte Tax. “I can’t imagine going into the August recess without doing anything on the Bush tax cuts.”

Lawmakers also plan to get to a jobs bill in early 2010 that will include some tax provisions.

That doesn’t leave much oxygen for anything else.

Paul Volcker, who heads the Economic Recovery Advisory Board, is still expected to present a report on tax reform principles to the Obama administration in early 2010, which could provide some clues on what the White House will do on the tax front in subsequent years.

Trouble with China

The economic relationship between the U.S. and China could deteriorate in 2010, according to a member of the U.S.-China Economic and Security Review Commission.

China’s leaders are increasing the state’s role in their economy as a means of promoting domestic companies, and that can lead to keeping foreign investors out and providing subsidies for state-controlled companies, said William Reinsch, a former chairman of the body who is also president of the National Foreign Trade Council.

Given existing tension between the two countries over trade, currency policy and human rights, not to mention Taiwan’s, Iran’s and China’s holding trillions in U.S. Treasury bonds, it’s easy to see how tempers could flare. Reinsch notes both sides also have a tendency to overreact to actions by the other.

Rep. Rick LarsenRichard (Rick) Ray LarsenFAA: New manufacturing issue discovered in undelivered Boeing 787 Dreamliners Newest Boeing 737 Max takes first test flight Democrats seek answers from Boeing, FAA after production issues with 737 Max, Dreamliner jets MORE (D-Wash.), the co-chairman of the U.S.-China working group, says China’s effort to define strategic sectors that it will protect is a big concern.

Most lawmakers are more worried about the U.S. economy, Larsen said in an e-mail. But his colleagues continue to look at China with a mixture of fear and opportunity.

“There are still concerns about Chinese intentions, particularly military,” said Larsen, who noted reports Tuesday about a Chinese missile test. He’s pushing members to recognize the potential for cooperation with China on energy, counterterrorism and energy, as well as through cultural and educational exchanges.

John Frisbie, president of the U.S.-China Business Council, also sees risks of a deterioration. He highlighted China’s refusal to allow its currency to appreciate against the dollar. Not doing so makes Chinese exports to the U.S. cheaper, which can exacerbate the trade deficit.

China’s exports rose in December by 17 percent and it surpassed Germany in 2009 to become the world’s largest exporter.