Tax reform: If both parties love it, why doesn't it go anywhere?

Almost everybody in Washington loves something called “tax reform.” It is hailed as a key element of any potential "grand bargain" for fixing America's chronic budget woes – a way for Democrats and Republicans to find common ground by making the tax code fairer.

The idea is simple: scrape away a thicket of tax deductions and use that money to lower tax rates. But on Tuesday, a speech by the president of the American Petroleum Institute (API) showed exactly why that simple idea is likely to become a difficult slog.

In theory, API President Jack Gerard should be a political ally with the congressional Republicans pushing for tax reform. But Mr. Gerard signaled that his group wouldn't remain quiet in the tax debate – and he is just one of a legion of powerful industry lobbyists defending their interests by standing between the cuddly notion of tax reform and a concrete proposal.

“Energy access, not taxes, is the key to unlocking new revenues for our government,” Gerard said in his annual State of American Energy address.

Many Republicans might agree with him about increasing access, but they also love to cite tax reform as a significant cure for the nation’s fiscal ills. Ultra-conservative Rep. Jim Jordan (R) of Ohio says the individual tax code is “broken,” with too many loopholes, and that the corporate code is “stupid,” with the highest statutory rate among advanced economies.

President Obama, too, says tax reform is vital to fixing the nation’s economy and, perhaps, helping close America’s budget deficit. During the "fiscal cliff" negotiations with House Speaker John Boehner (R) of Ohio, the president tried to get the speaker to take his deal by saying he would endorse corporate tax reform.

With or without the president, the House Ways and Means Committee will plow ahead with reform of the tax code in 2013, says chairman Rep. Dave Camp (R) of Michigan.

Wiping out most of the tax expenditures that help the oil and gas industry would save $38.5 billion over the next decade, the Congressional Research Service (CRS) estimates. Other changes that Democrats desire could add an additional $25 billion in savings over the next decade.

Gerard countered that Congress is focused on the wrong solution. If energy producers had greater access to reserves, the US would reap more than $800 billion in higher tax revenue through 2030 – or $47 billion a year – according to a study by energy research group Wood Mackenzie, Gerard said. He stressed that energy investments are producing economic growth from Pennsylvania to North Dakota.

His concern is that his industry could lose its tax breaks without getting comprehensive tax reform.

“Our view is that we should not be singled out as an industry for punitive tax treatment,” Gerard said in a subsequent news conference.

“If you’re going to have a corporate tax reform discussion,” he continued, “we are prepared to enter that discussion. We are going to be at the table along with everybody else, and it truly should be the comprehensive reform.”

The oil and gas industry has had favorable tax treatment for more than a century. One provision, intended to encourage the economically risky process of drilling for fossil fuels, has been in the tax code since 1913, according to the CRS.

But keeping tax provisions in the code makes it harder to get the savings needed to lower rates. And so as other powerful interest groups also weigh in to keep tax provisions – the health-care industry, veterans, real estate interests, the list goes on and on – the process of figuring out whose tax breaks will get the ax gets thornier.

That is the challenge facing congressional tax reformers. Gerard says he would be open to surrendering his favorable tax provisions so long as lower overall rates “do no harm.” But it appears to be impossible to get to the broader good of a tax leaner tax code, which economists say should spur the economy, without doing anyone any harm. 

“There are always winners and there are always losers,” said Bruce Josten, the US Chamber of Commerce’s chief lobbyist, in an interview with the Monitor in November. “Nobody pays the same amount of tax. Your deductions are different than mine.”