New Senate Finance Committee chairman aims to rewrite tax code

Senator Ron Wyden (D-OR), about to become the new chairman of the Senate Finance Committee, said Friday that he aims to eventually rewrite what he described as a “dysfunctional, rotting mess of a carcass that we call the tax code.” But in an acknowledgement of the challenges of tax reform, Wyden said he wants to quickly extend dozens of expiring tax provisions for another year as a “bridge” to reform and he even embraced some new tax subsidies.

Wyden will replace Sen. Max Baucus (D-MT), who the Senate confirmed Thursday as the new U.S. Ambassador to China.  Speaking in Los Angeles to a conference sponsored jointly by the USC Gould School of Law and the Tax Policy Center, Wyden framed his tax agenda around several key issues:

• Narrow the gap between taxation of investment income and ordinary income.
• Significantly increase the standard deduction.
• Simplify and enhance the refundable Child Tax Credit and Earned Income Tax Credit.
• Revise savings incentives by creating a new investment account for all Americans at birth, shift savings subsidies from high-income taxpayers to low- and moderate-income households, and consolidate and simplify the current tangle of existing tax-preferred savings incentives.
• Enhance job training.
• Restore Build America Bonds—a short-lived idea that partially replaced tax-exempt state and local bonds with direct federal subsidies. He’d also seek ways to encourage business to funnel overseas earnings into domestic infrastructure investment.

Wyden’s ambitious agenda incorporates most elements of his own 2010 tax reform plan though it goes beyond that proposal. And it includes some internal contradictions that he’ll eventually have to resolve.

On one hand, he says he wants to eliminate or scale back many of the tax expenditures that have made the Tax Code the dysfunctional rotting carcass he so memorably described. On the other, he’d add new subsides. For instance, his talk on Friday included a shout-out to Senator Bob Menendez (D-NJ) who introduced a bill called  Better Education and Skills Training (BEST) for America’s Workforce Act that would create $1 billion in new tax credits for firms that help train the long-term unemployed.

On principle, there is nothing wrong with replacing inefficient subsidies with better ones. But Wyden will find it extremely difficult to add some of his personal favorites while he’s slashing those of his colleagues.

Back in 2010, Wyden sponsored his own reform bill with now-retired GOP senator Judd Gregg (R-NH). He’s since gotten a new Republican cosponsor, Dan Coats of Indiana. The bill, called the Bipartisan Tax Fairness and Simplification Act, remains Wyden’s model for reform, though he made it clear that he’s willing to revise the proposal significantly to attract broader support. For a TPC analysis of Wyden original bill, clickhere.

That bill would create three individual income tax rates—15, 25, and 35 percent, significantly increase the standard deduction, repeal the Alternative Minimum Tax, and turn the preferential capital gains rate into an exclusion.

It would retain most big tax preferences such as those for home mortgage interest, state and local taxes, and employer-sponsored health insurance. But it would get rid of some smaller ones and turn the exclusion for municipal bond income into a refundable credit. It would set a single corporate rate of 24 percent and end some business preferences.

The TPC/USC conference was on income inequality and Wyden framed his tax agenda as part of a broader effort to address that issue. He said he sees proposed tax changes such as boosting capital gains taxes and expanding the EITC as part of an agenda that also includes raising the minimum wage.

That makes Wyden sound like a standard progressive Democrat. But his record is much more complex. For instance, Wyden has bucked his own party’s leadership by reaching across the aisle to lawmakers such as House Budget Committee Chairman Paul Ryan (R-WI) on Medicare reform.

Wyden likes big ideas, but he is also a pragmatist. His challenge as the new chair of the Finance Committee will be to mix the ambitious with the realistic. That’s what Bob Packwood, the last Finance Committee chair from Oregon, did when he helped pass the Tax Reform Act of 1986.