For all the major differences over the federal budget, President Barack Obama and congressional Republicans might be tiptoeing toward common ground and the first major overhaul of the tax code in almost three decades.
Lost in the political rhetoric Tuesday as Obama unveiled his proposed budget for the next fiscal year is fact that it reflects an important nod to the Republican chairman of the tax-writing House Ways and Means Committee.
Obama’s proposal comes weeks after Rep. Dave Camp, R-Mich., proposed a nearly 1,000-page draft bill that, if enacted, would become the first comprehensive overhaul of the tax system since Ronald Reagan signed the last one in 1986.
The Obama budget has a “significant amount of overlap” with Camp’s plan, insisted a senior Treasury Department official who spoke to reporters on condition of anonymity before the president’s tax proposals were unveiled along with the entire budget.
Cautioning that “obviously we don’t agree on everything,” the senior official added that the two approaches are “within shouting distance of each other.”
White House Budget Director Sylvia Burwell separately cited similar tax incentives for infrastructure investment that are similar to Camp’s draft.
And both Camp’s plan and the White House proposed budget would close a tax loophole that lets some Wall Street investment managers pay taxes at a much lower rate than managers of similar rank in other businesses.
Moreover, Obama’s Treasury Department, in its detailed analysis of 175 proposed tax-code changes in the fiscal 2015 budget, includes a “reserve for long-run revenue-neutral business tax reform.”
That’s a special section for detailed tax proposals to close loopholes or provide economic growth incentives. These are not counted in the budget projections or in deficit calculations, but are there for instruction on ways to revamp the tax code.
For his part, Camp doesn’t buy the idea of an overlap.
“Our plan to close loopholes and lower rates for all Americans would add $3.4 trillion to the economy, create nearly 2 million jobs and put $1,300 more per year in the pockets of middle-class Americans,” he said in a statement soon after the release of the president’s budget. “Unfortunately, the president’s budget adds more complexity to the tax code and increases taxes for more Washington spending. That is the wrong direction.”
Indeed, there are key differences.
Camp’s tax proposal seeks to overhaul individual and corporate tax rates. Obama last year succeeded in raising the top tax rate for those with the largest incomes, so he has little interest in lowering individual rates and in the budget envisions only a corporate tax revamp.
But Camp’s plan included a 10 percent surcharge on individuals earning more than $450,000, bringing the top rate closer to what it is today, a sweetener for Democrats.
This is a mid-term election year, so each side may be incorporating ideas from the other to appear less intransigent. But some see glimmers of light.
“Coming on the heels of Chairman Camp’s tax reform proposal, the president’s appeal for a simpler, more efficient, modern code shows the breadth of bipartisan support behind tax reform,” said Elaine Kamarck and James P. Pinkerton, respectively advisers to the Clinton and Reagan administrations and now co-chairs of the RATE Coalition.
RATE is a lobby for 32 major U.S. corporations that want lower corporate taxes and a simpler tax code.
“A 21st century tax code premised on a broad base, internationally competitive rates and a fairer system will create jobs, entice businesses to invest here at home and spur far-reaching economic growth. Republicans and Democrats agree, and so do economists,” the pair said.
The group for big business_ whose members include AT&T, Wal-Mart and others_ was silent on the 16 proposals in Obama’s plan that collectively would revamp how the United States treats international business and would raise $276 in additional revenue.
The Business Roundtable, a lobby for large international companies, was not. It said the international tax proposals “would move the U.S. economy in the wrong direction, placing U.S. companies in a worse competitive position than they face today,” said John Engler, the group’s president.
Both the Camp tax plan and Obama’s budget projections share a bit of wishful thinking. The president calls his plan revenue-neutral over the long run, which is to say it actually raises tax collection in the short and medium run. Similarly, Camp offers lower tax rates that are revenue neutral over a short window but critics think reduce tax intake over a longer horizon.
“One of the most difficult things to swallow . . . is that you’re going to allow the revenue to tail off given all the other (fiscal) problems,” said Joe Minarik, research director for the pro-business group Committee for Economic Development and a former key Democratic staffer during the last tax-code overhaul.
He’s referring to this troubling fact: Even with falling deficits, an aging population will strain federal retirement programs. And interest on the debt, under Obama’s rosy 10-year forecast, still rises from $223 billion in the current fiscal year to $812 billion in 2024_ more than $200 billion above all non-military spending that isn’t mandatory in that year.
“We are not yet grappling with the long-term budget problem,” he said. “And there is not enough overlap between the administration and the Congress to imagine there’s going to be a serious conversation anytime soon.”