Divisions strain tax talks

House Republicans had a message for the Obama administration on Tuesday: You still haven’t done enough on tax reform.

In his first appearance before the House tax-writing panel under new Chairman Paul Ryan, Treasury Secretary Jack Lew pitched the president’s newest plan to revamp the tax system for businesses, an area where both parties believe they can find common ground.

{mosads}But Republicans on the Ways and Means Committee, while welcoming of the proposals on the international tax system for corporations, insisted that President Obama’s tax reform plan falls far short when it comes to helping small businesses.

“With this administration, in the past we haven’t had very high hopes,” Ryan (R-Wis.) told Lew, who was testifying Tuesday about the president’s 2016 budget plan. “But you have gradually, grudgingly taken a few steps in my opinion in the right direction.” 

The GOP comments showed the political and policy obstacles that tax reform still faces, even after Obama called for a 14 percent tax on the offshore income currently held by multinational corporations and a 19 percent minimum tax on future global earnings.

Republicans and Democrats have been at loggerheads for years over how to overhaul the tax code, and Tuesday’s hearing showed off longstanding divisions over how comprehensive tax reform should be. Even as the GOP gave Lew some lukewarm credit for moving the debate forward on tax reform, House Republicans also continued to blast the administration for seeking tax increases on individuals, particularly on investments.

On top of that, Lew, one of the administration’s point men on tax reform, already has a history of contentious negotiations with Republican leaders in previous rounds of budget talks. 

Ryan and other Republicans on Tuesday specifically questioned why the Obama administration didn’t offer more proposals to help out the businesses that pay taxes through the individual system, known as pass-throughs. 

Obama and other Democrats have said they have no interest in reducing the top individual tax rate, now at almost 40 percent, but the administration has floated bolstering tax breaks for small businesses. Both sides want to reduce the top corporate rate, which now stands at 35 percent — Republicans to 25 percent, the Obama administration to 28 percent. 

“Small businesses — they are the engine of our economy,” Ryan said. “This committee is not going to leave them behind.”

Lew defended the administration’s proposals, saying they “reflect our commitment to work” across the aisle on tax reform. 

“This is a complicated area,” Lew said. “I’ve said that we will work together on this.” 

The Obama administration has pitched its tax plan as a way to help prop up the Highway Trust Fund, which continues to bleed money and will need another influx of cash by the end of May, and to transform an international tax system that experts have derided as the worst of all worlds.

But Lew’s date before the Ways and Means panel underscored that the top officials have deep differences to bridge if they’re going to strike a major tax deal.

Ryan and Lew were able to find a potential area of agreement: expanding the earned income tax credit, aimed at boosting the working poor.

But other lawmakers, from both parties, used their time to defend the sort of tax incentives that could be on the chopping block in tax reform, including the LIFO accounting method (“last in, first out”) and the 529 accounts for college savings. The president backtracked last week on his plan to impose new taxes on the college plans.

Still, it was the debate over small businesses that got especially testy. 

The administration has called for more generous rules for smaller companies’ investments, in the budget and elsewhere. But Rep. Dave Reichert (R-Wash.) pressed Lew to tick off further proposals to ease the tax burden for those businesses.

“I’m here to present our budget,” Lew shot back at Reichert. “You’re asking me to present things that we’ll work on in the future.” 

The exchange caught Ryan’s attention. 

“Keeping you uneasy,” the chairman said to Lew. “That’s nice.” 

It also showed that both sides remain wary of each other as they dig deeper into tax reform discussions. 

Lew, along with Jason Furman, the chairman of Obama’s Council of Economic Advisers, has been a key player in Obama’s pitch for business tax reform. In January, the Treasury secretary even put the odds at a deal on that front at better than 50-50, just hours after the president’s State of the Union address touched on tax increases cheered by Democrats and jeered by Republicans. 

But former aides from both parties who have worked with Lew insist that tax reform has never been one of the Treasury secretary’s top interests, with one ex-GOP staffer saying that Lew isn’t quite the dealmaker he thinks he is. Lew and Speaker John Boehner (R-Ohio) also famously frustrated each other during 2011 debt limit negotiations. 

At the same time, Lew is meeting more actively with small-business advocates, in an attempt to gin up more support for the administration’s efforts. 

Jared Bernstein of the Center on Budget and Policy Priorities, who worked with Lew in the Obama administration, said he believed the Treasury secretary would “really like to do something” on tax reform. 

But Bernstein, speaking last week before the new proposals on international taxes, added: “I would say that his interest is tempered by the reality of what’s possible.”

— Updated at 8:50 p.m.

Tags Boehner Dave Reichert Jack Lew Jason Furman John Boehner Paul Ryan

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