Domestic Taxes

Obama moves on tax reform, but GOP wary of sticking points

The Obama administration took an opening step toward reforming the nation’s tax code on Friday, even as potential sticking points in the debate became more and more apparent.

After prominent officials in both parties endorsed taking a look at tax reform in recent weeks, Treasury Secretary Timothy Geithner discussed corporate tax rates on Friday with finance officials from close to 20 major companies.

{mosads}But on that same day, a prominent Republican fired a warning shot at the White House, cautioning the administration not to view tax reform as a revenue-raising mechanism. Meanwhile, lawmakers from both parties acknowledged that the discussion over reform would almost certainly get stickier as it delves deeper into issues such as how comprehensively to overhaul the tax code.

“When you’re at the 28,000-foot level, you can find agreement,” said Rep. Chris Van Hollen (D-Md.), the incoming ranking member on the House Budget Committee. “But as we descend, we may hit some more turbulence.”

As for Friday, the Treasury Department consistently downplayed the meeting in the days leading up to it, terming the get-together the start of a discussion on tax reform. Frank Calderoni, the chief financial officer of Cisco and a participant in the gathering, cast it in similar terms, saying in a statement after the meeting that he was encouraged and looked forward to a “fruitful dialogue with the administration and Congress on how to level the playing field for American businesses through a more modern tax code.”

With that in mind, there does appear to be some broad agreement across party lines that tax rates could stand to be lowered and that the tax code has too many loopholes.

Late last year, the chairmen of the president’s debt commission recommended closing loopholes and lowering rates as part of their deficit reduction plan. Around that time, President Obama also endorsed having a “conversation” this year about tax reform.

But with the State of the Union just 10 days away, the administration appears to be grappling with how much political capital to spend on tax reform.

“The President himself has said that reforming the tax system is a priority and the bipartisan fiscal commission recently made recommendations that he will consider as part of the budget process,” a White House official said Friday. “But he is not considering specific policy proposals, and no decisions have been made about whether this is a priority he will push for in the near future.”

Lawmakers and policy analysts have said they will look for signs of how the president wants to proceed in his Jan. 25 address to Congress.

But some – like Sen. Orrin Hatch (R-Utah) – are already trying to influence the direction of the debate.

Hatch, the incoming ranking member of the Senate Finance Committee, applauded Geithner’s Friday meeting with business leaders in a statement while also calling for corporate tax reform.

But the senator also warned the administration against trying to increase the amount of taxes the government brings in during a push for reform, echoing other Republicans who have said Washington has problems with spending, not revenue.

“This would unnecessarily politicize a much-needed discussion of how to fix and improve our tax code,” said Hatch, who could face a primary challenge from the right in 2012.

For his part, Geithner said in a speech on Wednesday that the administration was gauging whether it could find the necessary political support for reforming the tax code in a revenue-neutral way.

Another Republican lawmaker who works closely on tax issues, Rep. Pat Tiberi of Ohio, signaled that he thought it was too early to say whether a tax reform package would have to be revenue-neutral.

“I think that’s something that’s a bit overstated. We had that debate, as a sidebar during the month of December,” Tiberi said, referencing the tax-cut compromise that added hundreds of billions to the deficit. “And we saw an extension of the current rates.”

Tiberi, who is the new chairman of a House Ways and Means subcommittee that deals with taxes, is also one of a bipartisan group of lawmakers who want to pursue more comprehensive tax reform – overhauling rates for both businesses and individuals.

But it remains to be seen how interested the administration would be in something that broad. Van Hollen, meanwhile, said that he thought both the corporate and individual tax codes needed to be reformed, but that he wasn’t sure whether it was easier to tackle them together.

According to Donald Marron, the director of the Urban-Brookings Tax Policy Center, a more comprehensive reform would “be harder to pull off, with more moving pieces.”

“With corporate reform, you can narrow the scope,” he added.

Still, even with all those potential roadblocks, lawmakers and other officials are hopeful some sort of reforms can be enacted during the current Congress. The last major overhaul of the tax code happened a quarter-century ago, after a protracted debate during the Reagan administration.

“Every time this has been done in the past, it has taken a couple of years, if not more, to get it done,” Valerie Jarrett, a senior White House adviser, said recently, adding: “It is going to take some time, it is going to be complicated, and it has to be an inclusive process.”

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