IRS Scandal Throws Max Baucus New Challenges on Tax Reform

Stacy Kaper
National Journal

The unfolding Internal Revenue Service scandal could complicate Senate Finance Committee Chairman Max Baucus’s No. 1 goal of enacting comprehensive tax reform before he retires at the end of this Congress.

The Montana Democrat—whose powerful panel has oversight of the IRS—was quick to call the agency’s targeting of conservative groups “intolerable” on Monday, vowing that the Finance Committee would launch a “full investigation” and “get to the bottom” of the matter.

Baucus was already facing an uphill challenge in his quest to complete tax reform on such a fast timetable, particularly given the lack of enthusiasm from the Obama administration, questionable support from leadership, and differing underlying goals of Republicans (who generally oppose raising revenue) and Democrats (who fear tax reform will cost poor people more). Now, with trust in one of the most disliked federal agencies rapidly eroding—under a Democratic administration, no less—Baucus will have to divert precious time and resources toward conducting oversight and building an investigation, with intense pressure to prove Democrats are taking the offenses just as seriously as Republicans.

The turn of events does nothing to inspire bipartisanship on Capitol Hill, enhance trust in government, or make delicate political negotiations simpler. The IRS misstep also adds to the challenges Baucus already faces in managing another key aspect of his agenda: ensuring smooth enactment of the Affordable Care Act—ever in the crosshairs of Republicans—which includes tax changes that the IRS is responsible for implementing. Opponents to tax reform have new ammo now. They can call for cleaning up the IRS first and continue questioning the intentions of the administration.

“The whole thing, if true, really will further polarize the Congress and make it even more difficult when it was already going to be difficult to find any kind of agreement in tax reform,” said G. William Hoagland, a senior vice president with the Bipartisan Policy Center and a former budget aide to Senate Republicans. “It will have major ramifications for policy development on Capitol Hill. If nothing else, it will distract what was already pretty difficult work for Congress in terms of legislation.... That will take time away from what would have been spent on tax reform and implementation of the [health care] law.”

Many budget wonks and political junkies closely following fiscal negotiations on the Hill insisted that the IRS’s mishandling poses a separate set of questions discrete from tax-policy issues. However, several argued that, regardless, the situation has the potential to overshadow policy negotiations, which could put Baucus in a particularly tough bind.

“This is a big deal. This is the kind of thing that can be used as an excuse not to communicate, not to attempt to find common ground. It’s potentially pretty poisoning,” said Joseph Minarik, a senior vice president with the Committee for Economic Development.

“He’s got to spend some time dealing with a problem of misbehavior, which is not his fault, when he wanted to make a lasting change and improvement in public policy. And there is no way this makes it easier.... This is clearly making it worse,” he added.

Congressional aides to members intent on enacting tax reform argued that the IRS scandal would not interfere with those deliberations.

“As far as tax reform [goes], this will not upset the work being done,” a Baucus aide said. “The committee is quite capable of working on multiple issues at the same time.”