Lawmakers, Lobbyists Push for New Tax Breaks Through Secret Process

Nancy Cook

The Senate's top tax writers' "blank slate" approach to tax reform was supposed to give Congress the chance to throw out all tax breaks and start fresh. Instead, lawmakers and lobbyists are using their confidential and off-the-record testimony and letters of support to ask for brand new or expanded tax breaks in addition to the old.

It's a boondoggle that illustrates the difficulty of sorting through hundreds of breaks, which now cost the federal government more than $1 trillion a year and complicate a tax code that's already four million words long.

Democratic Sen. Christopher Coons of Delaware, for instance, wants renewable0energy companies to receive a new distinction that would make sure they avoided corporate taxes and could instead file through the individual side of the code as a master limited partnership— benefit already granted to oil, natural gas, and coal mining companies.

The real-estate industry, represented by the National Association of Realtors, wants two temporary tax credits made permanent, even though the existing mortgage-interest deduction already is one of the costliest tax breaks on the books.

Manufacturers want a temporary research-and-development credit embedded into the code for the long run. Now, it's a temporary provision that must be renewed along with a lengthy list of other business tax extenders.

And, Sen. Jay Rockefeller of West Virginia urged the Senate's tax writers to look at expanding credits like the refundable child tax credit and the earned income tax credit in the letter he submitted to the Senate Finance Committee. Enhancing these tax credits would help to fight income inequality, he wrote; the flip side is that any expansion could also cost the federal government millions of additional dollars a year.

It's not surprising. Behind every tax break is an ally in Congress, a team of lobbyists, or a powerful corporate-backed tax coalition, after all. But that makes the exercise politically perilous, despite the best intentions of the Senate Finance Committee to overhaul the nation's tax laws.

The deadline for lawmakers to submit their letters justifying tax breaks hit on Friday, July 26. The purpose of the Senate Finance Committee's exercise was to figure out a way to pare back the tax code's obscure, outdated, or costly breaks or provisions; instead, some senators submitted letters suggesting new ideas. Others, like Republican Sen. Jeff Flake, stuck to broad themes. Flake endorsed lower tax rates for businesses and individuals, as well as a different international tax system, without delving into the details of how to enact i—and that's the tough part.

Americans will never know every detail of the senators' arguments for different tax breaks. To urge reticent lawmakers to participate in the process (during a busy time when also they contended with a student-loan deal and an appropriations bill), the Senate Finance Committee promised them an extraordinary level of secrecy surrounding their submissions.

First, the committee declined to release any information about the number of submissions it received on Friday, according to Sean Neary, spokesman for Chairman Max Baucus. Then, the committee promised to lock the paper copies of the senators' submissions in a safe, with each document receiving an ID number and a special encryption to combat the often-chatty nature of Capitol Hill.

The theatrics of the process still weren't enough to distract from the broader political challenges that face tax reform this fall. Senate leaders on both sides of the aisle dismissed the 'blank slate' process and the tax-reform efforts overall late last week.

Democratic Majority Leader Harry Reid refused to become involved in the blank-slate exercise, telling reporters last Thursday: "I'm not going to do it. I'm not even going to consider it."

Reid and Democratic leadership want any overhaul of the tax code to raise money for the federal government, like the proposal outlined in the Senate Democrats' budget passed in March. It called for finding $975 billion in new revenue over the next decade through the elimination of yet-to-be-determined tax loopholes and provisions. Senate Finance Committee Chairman Max Baucus was one of the Democrats to vote against his colleagues' budget blueprint.

The Republican leadership also indicated it was foolhardy to consider tax reform until the Democrats agreed that such legislation would not increase tax bills for voters or businesses. In a letter sent to Baucus and ranking member Orrin Hatch, the Senate's top Republican leadership wrote: "Our nation faces long-term fiscal challenges due to the projected path of entitlement spending, not due to a lack of tax revenue."

None of this criticism has slowed down the tax writers. In addition to sifting through blank-slate submissions in the Senate, Baucus and House Ways and Means Committee Chairman Dave Camp plan to visit the Philadelphia area on Monday to talk about tax reform at two small businesses.

Senate leadership may not care for the tax reform exercises, so far, but it's done little to mar the photo opportunities surrounding the tax reform efforts, or the persistence of the top tax writers.