Tax Reform Agenda Slips Down White House Priority List

by Mike Godfrey, Tax-News.com, Washington

06 April 2006

Sen. Charles Grassley (R - Iowa), Chairman of the tax-writing Senate Finance Committee, has told tax executives that the Bush administration will not be pushing its tax reform agenda this year, and an important tax cut bill will remain bogged down in Congress until after the April recess.

Confirming what many observers have already concluded - that the White House does not want to want to upset the political apple cart in a mid-term election year by introducing contentious legislation that could dramatically alter the shape of the US tax code - Grassley told Tax Council members on Tuesday that the Treasury will not publish its long-awaited report on tax reform until next year at least.

"From what I’ve heard, this won’t happen this year," stated Grassley, referring to the follow up report to the presidential advisory panel's recommendations on tax reform, released last November.

In his speech, Grassley hinted that he has his own ideas about the direction that tax reform should take, and suggested that lawmakers should look for ways to reduce the rate of US corporate tax, which remains one of the highest among OECD members.

"The committee isn’t necessarily going to limit its consideration to the proposals recommended by the tax reform panel. I have instructed my staff to continue to evaluate and develop proposals to simplify the tax system," he revealed.

"We should also look at ways to broaden the corporate tax base by eliminating loopholes and special interest preferences. The lower rate ought to apply across the board to all business income, rather than favoring one income producing activity over another," he added.

In the meantime, lawmakers continue to debate the merits of a tax reconciliation bill which seeks to extend some of President Bush's key tax cuts, such as the dividend and capital gains tax cuts, in addition to patching up the AMT for another year.

However, despite Grassley's efforts to accelerate the schedule for negotiations between the House and the Senate, progress on the final bill remains frustratingly slow - and Grassley lays the blame for this delay squarely at the door of the House negotiators.

"I hoped to make significant progress before the April recess. But the House conferees have, so far, not been interested in an accelerated schedule," he remarked.

One of the biggest obstacles has been the 'Byrd rule' which permits a maximum of $70 billion in tax cuts over the 5-year budget window ending in 2010. Each year outside the window must be deficit neutral.

Grassley explained that this rule is a problem for the dividend and capital gains extension, because the provision scores as losing over $30 billion outside the budget window, mostly in 2011 and 2012. In order to overcome this procedural hurdle, either the revenue losses must be offset, or 60 Senate votes are needed to overcome a point of order.

"I have continued to keep both of these paths open," he stated.

Nonetheless, Grassley is confident that both the dividend and capital gains tax extensions and the AMT patch can be shoehorned into the final bill.

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