Danger Brewing on Tax Reform

by Patrick Lester, 7/10/2013

The need for a more progressive tax system is clear. There is ample evidence, including the fact that while corporate profits are at a 60-year high, corporate taxes are near their 60-year low as a percentage of the economy.

But progressives hoping for positive change from Capitol Hill should be wary. If anything, they are more likely to find themselves playing defense than offense on tax issues this year.

Consider:

  • President Obama Gave Away His Leverage When He Signed Bush-era Tax Cuts into Law Permanently: When President Obama signed legislation earlier this year that made 82 percent of the Bush-era tax cuts permanent, he lost most of his leverage over congressional Republicans on the tax issue. On Jan. 6, shortly after the bill was signed into law, Senate Republican leader Mitch McConnell (R-KY) told ABC's George Stephanopoulos, "The tax issue is finished, over, completed. That's behind us." Soon afterward, a spokesperson for House Speaker John Boehner (R-OH) told BNA, “We regard the issue as settled.”
     
  • Congressional Republicans Don't Care What National Polls Say: While polls suggest that most Americans think corporations and the wealthy should pay more, congressional Republicans don't care. In the 2012 election, five-sixths of House Republicans took more than 55 percent of the vote in their districts. Most House Republicans are less worried about public pressure from the president than about a potential primary challenge. “At the end of the day, the only poll that matters is the one in people’s districts. I’m focused on the people in my district," Rep. Tim Griffin (R-AR) told the National Journal. "National polls include people in Nancy Pelosi’s district, Henry Waxman’s district.... I don’t work for them, and I’m not real worried about the national polls.” 
     
  • President Obama Has Already Endorsed Revenue-neutral Corporate Tax Reform: While President Obama continues to lobby Congress for "balanced" deficit reduction that includes new revenue, he has already endorsed revenue-neutral tax reform for corporations. Think corporations should pay as much as ordinary Americans? Revenue-neutral corporate tax reform won't help. 
     
  • If the Republican-controlled House Passes Tax Reform, It Will Be Revenue-neutral, Possibly with Democratic Support: The chief Republican tax-writer in the House, Dave Camp (R-MI), has made it clear that any tax reform plan coming out of the House will be revenue-neutral – and he may accomplish this with at least some Democratic support. While the House Republican leadership said they would pass a plan with Republican votes alone if necessary, they are nevertheless reaching out to selected Democrats to gain at least the appearance of bipartisanship. There are reportedly four or five Democrats on the House Ways and Means Committee already willing to vote for revenue-neutral tax reform. There are probably many more among the ranks of moderate "Blue Dog" Democrats in the House more generally.
     
  • The Lead Democratic Tax Writer in the Senate Is an Unreliable Ally: Sen. Max Baucus (D-MT) is at best an unreliable ally of progressives. On July 10, reports emerged that he told his Republican counterpart on the Senate Finance Committee, Sen. Orrin Hatch (R-UT), that the bill that emerges from their committee would be revenue-neutral. When asked about it, Baucus backtracked slightly, saying: "I think in the end, when the bill is on the president's desk, there'll be some revenue," according to a report in Tax Analysts. This isn't the first time that Baucus has wavered on tax issues. In 2001, he helped push the Bush-era tax cuts into law. More recently he has been issuing joint statements with Hatch and he recently began a national tour in support of tax reform with his House Republican counterpart, Dave Camp. 
     
  • Interest Group Politics Do Not Favor Progressives: Unsurprisingly, public interest groups working on tax reform are being vastly outspent by corporate lobbyists and PACs. Among their opponents is "Lift America," a coalition of corporations that has explicitly endorsed revenue-neutral corporate tax reform. Its ranks include companies like Wal-Mart, the Coca-Cola Company, Johnson & Johnson, and 3M – the last of which just hosted the first stop on the joint Baucus-Camp tour in favor of tax reform.


Progressives should continue to advocate for a tax system that is more fair. But they should also be aware that the current political environment is far from favorable. They are far more likely to end up playing defense than offense on tax issues this year.

Update: The Center on Budget and Policy Priorities has just released a new paper describing some of the concerns progressives have with deficit-neutral tax reform. See The Problem With Deficit-neutral Tax Reform.

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