Baucus proceeds alone on tax reform

Staff Writer
Columbus CEO

(c) 2013, The Washington Post.

WASHINGTON — Despite evaporating momentum for tax reform, Senate Finance Committee Chairman Max Baucus began unveiling specific options for overhauling the tax code Tuesday, arguing that the issue may yet have "political potency."

"Once we get the ball rolling, many are going to see, 'Hey, maybe there's something to this. Maybe there's an opportunity there to help the country create jobs and therefore an opportunity for political benefit here,' " Baucus, D-Mont., told reporters. "Because the goal here is to create jobs."

Baucus opened with a topic specifically intended to spur interest: a revision of the tax laws governing foreign earnings. Both parties are keenly interested in lowering the 35 percent corporate tax rate and encouraging companies to bring home the roughly $2 trillion in profits now held overseas to avoid U.S. taxation.

To accomplish those goals, Baucus proposes lowering the corporate rate in the United States to something under 30 percent — he has yet to specify a precise target. He would also end the practice of deferral, which lets companies avoid U.S. taxes on foreign-earned profits until they bring the money home.

Instead, a 20 percent tax would be immediately imposed on accumulated profits that have benefited from deferral, payable over eight years. That would encourage companies to bring the money home and pursue domestic investments, while producing a one-time windfall of more than $200 billion for the U.S. Treasury, aides said.

Future earnings would be taxed at the new, lower rate under one of two systems, aides said. Under both systems, income derived from sales to the U.S. market would be taxed immediately at the full rate, no matter where they were realized.

For income derived from sales and services to foreign markets, Option Y would exempt companies entirely from U.S. taxation if they were already paying at least 80 percent of their potential U.S. tax bill to the relevant foreign government. Option Z would exempt 40 percent of that income and tax the rest at the new U.S. rate.

Aides said Baucus was also considering a plan developed by House Ways and Means Committee Chairman Dave Camp, R-Mich., known as Option C, as a "potential alternative framework." That proposal, which has been criticized by Treasury officials but has gained traction in the business community, assumes a 25 percent rate on profits earned in the United States. Profits earned overseas would be exempted, except for those earned on intangible products such as patents, which would be taxed at 15 percent regardless of location.

Baucus presented the proposals to the entire Senate Finance Committee on Tuesday morning and has asked for comments from lawmakers and other interested parties by Jan. 17. After the meeting, Democrats were generally noncommittal while Republicans said they may be willing to work with Baucus on a bipartisan draft in the new year.

For now, Republican senators have agreed to withhold their cooperation while a bicameral budget conference committee works to fund the government past Jan. 15, a process that has been marked by Democratic calls for new tax revenue.

Sen. Charles Grassley, R-Iowa, who serves on both the budget committee and the Senate Finance Committee, said Republicans agreed to hold off supporting any provision in the tax reform proposal that could raise revenue so it "would not be co-opted by the budget committee."

The budget committee is due to wrap up its work by Dec. 13. "If this was after Dec. 13," Grassley said, "I think you'd have some Republican suggestions" on tax reform.

Tuesday's release is slated to be followed later this week by two more proposals from Baucus. One will offer ideas for strengthening enforcement of existing tax laws and closing a so-called "tax gap" estimated to add up to more than $300 billion a year. The other will deal with laws that permit businesses to recover their costs, such as depreciation.

Aides said Baucus may not forge ahead with more controversial aspects of tax reform that could sharply limit popular tax breaks for individuals, such as deductions for mortgage interest and charitable donations. Neither Democrats who control the Senate nor Republicans who control the House are interested in pursuing tax reform right now, in part because of those potentially painful details.

But such issues are more political than technical and could be resolved in the final stages of tax reform, one senior tax aide said. They do not require the same level of technical scrutiny as complicated proposals for international taxation.

Baucus, who has been working closely with Camp, denied that efforts to advance tax reform in the House have stalled. Camp has recently backed off promises to release a full reform proposal this year; few analysts expect Congress to tackle something as potentially divisive as tax reform next year, with midterm elections looming in November.

Still, Baucus said he and Camp remain dedicated to moving forward.

"Camp wants to go ahead, too, and at the appropriate time, I think he will," said Baucus, who plans to retire at the end of next year.

Meanwhile, "I'm just trying to make something happen by taking the initiative. Getting going here. Getting started. We've spent nearly three years working on this," he said. "It's time to move."

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