(Bloomberg News) The collapse of efforts to kick off a U.S. tax code overhaul through a debt-ceiling compromise demonstrates how difficult it will be for lawmakers to rewrite the nation's revenue laws.
Republican congressional leaders and President Barack Obama discussed a rewrite of the tax code over the past week and couldn't resolve even the basic outline of what it should look like. They disagreed on revenue targets, the progressivity of the code, international taxation issues and the treatment of large businesses that aren't currently taxed as corporations, according to two Republicans familiar with the talks.
Those disputes on important parameters that would guide an overhaul led House Speaker John Boehner to abandon efforts for a bigger deficit deal on July 9. Regardless of what happens in the debt-ceiling talks, the barriers that Obama and Boehner faced will recur if and when Congress attempts to restructure tax policy.
"This is a far more difficult and far more complicated process than, at least publicly, people have been willing to admit," said John Buckley, the former chief Democratic tax counsel at the House Ways and Means Committee.
That challenge awaits Ways and Means Chairman Dave Camp and Senate Finance Chairman Max Baucus, who have each been holding a series of hearings on a tax overhaul and preparing to write major tax bills. The two committees tomorrow are set to hold what they are calling their first joint hearing on tax policy in more than 70 years, focused on how the tax code treats debt.
When Camp, a Michigan Republican, and Baucus, a Montana Democrat, start legislating on a tax overhaul, they will face the same issues that bedeviled Obama and Boehner.
The president and the speaker couldn't resolve what a tax code rewrite should look like, the people familiar with the talks said. Obama's team said any overhaul must shift more of the nation's tax burden to high earners, extending current tax rates for lower- and middle-income people while raising them to pre-2001 levels for the highest-income taxpayers.
Boehner's side said such a plan would skew the tax burden to the wealthiest Americans more than it had been in the past, said the Republicans familiar with the discussions.
Republicans said a tax code revamp should ensure that most households pay at least some federal income tax, the people said. Republicans cite an April 2011 analysis by the Joint Committee on Taxation, Congress's tax-estimating panel, which said about 51 percent of U.S. households owed no income tax in 2009. That percentage is a byproduct of the recent recession and policies designed to ease the tax burden on low-income workers.