The great tax debate: Dueling Congressional tax proposals clash

Yesterday, Senate Finance Committee Chairman Max Baucus (D-MT), who rarely gives public speeches, laid out his agenda for tax reform. Just for fun, I compared what Baucus told the Bipartisan Policy Center to a speech House Ways & Means Committee Chairman Dave Camp (R-MI) delivered just three weeks ago to a group of Washington lobbyists.

For optimists, there were some points of agreement. For example, both chairmen focused on the importance of a tax code that encourages economic growth and international competitiveness. Both said it is important for Congress to take a hard look at the individual merits of each of the scores of expiring tax preferences rather than mindlessly extending them as a group–as Congress always does.

But after that, the gulf between the two men is simply stunning. Baucus said flatly that any tax reform has to generate more money. “Deficits and debt are not just a spending problem,” he said, “We simply don’t raise enough revenue.”

Camp is in a far different place: “I can firmly say our goal is: One, block massive, job-killing tax increases; and, two—enact…comprehensive tax reform.”

Of course, one can try to parse Camp’s words and conclude that perhaps he’d support smaller, non-job killing tax increases (whatever they are). Or, perhaps, broadening the tax base is, in his fiscal theology, not a tax increase at all. But even this sort of close Talmudic reading still leaves a revenue chasm between Baucus and Camp. And keep in mind that the two chairmen are far more likely to seek accommodation across the aisle than many in their respective caucuses.

Revenue is not the only place where the two men differ. Camp and the House GOP caucus have set a very specific set of goals for a revised tax code: Set two individual rates of 10 percent and 25 percent; eliminate the Alternative Minimum Tax; and move the corporate tax to a territorial system, where the US would tax income generated only in the U.S.

For Baucus, this thinking is exactly backward. In his view, issues such as rates and structure should take a back seat to a broader, macro-economic aim: “We should think about what’s the real reason for tax reform. Why are we doing this?”

To that end, Baucus wants a tax code that reflects changes in both economics and demographics. So, for instance, he wants a revenue code that recognizes the rise of services and technology, and one that addresses the needs of single-parent households.

Camp may be thinking of these issues as well, but his main focus is those low rates.

Finally, there is the matter of short-term tactics. Camp and the House Republicans want a vote this summer on extending all of the 2001/2003 tax cuts. Most Senate Democrats, for their part, want a vote this summer on extending those tax cuts for all but the highest income households. But the always-cautious Baucus does not. He wants to avoid divisive partisan votes before the election.      

It is, of course, dangerous to take the public words of politicians too literally. And when given a choice between listening to what they say or watching what they do, it is always preferable to do the latter. But Camp and Baucus are serious guys in important positions. It never hurts to pay attention to what they have to say.