Washington INsider

Washington INsiderblog

Mark Schoeff Jr. looks at what's really happening on Capitol Hill - and the upshot for advisers.

How the budget battle greases the skids for a tax overhaul

Making Bush cuts permanent creates foundation for comprehensive code rewrite

Jan 7, 2013 @ 3:03 pm

By Mark Schoeff Jr.

It took intense last-minute negotiations, early morning and late night votes and hours of politically charged caucus meetings for Congress to do something relatively easy – avert a plunge over the fiscal cliff by approving a bill that preserved tax cuts for nearly 100% of Americans.

Even before the final “aye” and “nay” been cast on the fiscal-cliff bill, Republicans and Democrats were girding for the next fiscal war over paring the massive federal deficit and debt.

The verbal jousts were amplified this past weekend, as Senate Minority Leader Mitch McConnell, R-Ky., appeared on three Sunday news programs to warn President Barack Obama that the GOP would demand deep spending cuts over the next couple months in order to raise the federal debt ceiling and keep the government operating.

In the midst of these battle cries, however, there is a quiet but growing chorus of optimism that Washington can take on an issue that is much more complex and fraught with political pitfalls than debates over the fiscal cliff and federal spending.

Lawmakers and experts believe that Congress can tackle comprehensive tax reform in 2013. The fiscal-cliff bill provided the foundation for such a debate by making many of the Bush tax cuts permanent.

One of the lawmakers who will be instrumental in tax reform was hopeful just before the House voted to approve the fiscal-cliff bill.

“This legislation settles the level of revenue that Washington should bring in,” Rep. Dave Camp, chairman of the House Ways & Means Committee, said in a floor statement on Jan. 1. “Next, we need to make the tax code simpler and fairer for families and small businesses. So, by making Republican tax cuts permanent, we are one step closer to comprehensive tax reform that will help strengthen our economy and create more and higher pay checks for American workers.”

The fiscal-cliff bill determined the “baseline” from which tax reform discussions can start, according to Jon Traub, managing principal of tax policy at Deloitte Tax LLP and a former aide to Mr. Camp.

Prior to congressional action last week, one of the biggest obstacles to tax reform was sorting out whether the starting point was a tax code that included the Bush tax cuts or one that let them expire.

Now that that question has been settled, it easier to determine how much “revenue” there should be in a “revenue neutral” tax overhaul, Mr. Traub writes in a recent analysis.

In addition, as Mr. Traub points out, Senate Finance Chairman Max Baucus, D-Mont., notes that the fiscal-cliff bill did not change policy toward so-called tax expenditures – such as retirement-savings incentives – nor did it address corporate tax reform. Both of those big items remain on the table for comprehensive tax reform.

Even the fight between President Barack Obama and congressional Republicans over further tax increases and spending cuts could find a resolution in broad tax reform, according to Mr. Traub.

“[W]ith House Republicans highly unlikely to agree to any legislation that increases tax rates and President Obama pledging in a statement delivered shortly after the [fiscal-cliff bill] passed the House that future efforts to reduce the deficit will not rely solely on spending cuts, the parties are likely to find tax reform one of the few ways to accommodate these competing interests,” Mr. Traub writes.

If Congress does undertake tax reform, it's likely to be even more dramatic than the fiscal-cliff machinations, with hundreds of lobbying groups protecting their favored tax breaks and lawmakers splitting along both partisan and regional lines to shield the parts of the code most important to them.

But at least the chances are good that Congress will start down the tax-reform path in 2013.


What do you think?

View comments

Recommended for you

Sponsored financial news

Upcoming Event

May 02


Women Adviser Summit

The InvestmentNews Women Adviser Summit, a one-day workshop now held in four cities due to popular demand, is uniquely designed for the sophisticated female adviser who wants to take her personal and professional self to the next level.... Learn more

Featured video


Children of AI, and when they are coming to financial advice

Technology reporter Ryan Neal talks about the tremendous progress in artificial intelligence in other industries, and how its applications are slowly making headway in the advice sector.

Latest news & opinion

Brokers accept proposed SEC rule on who can call themselves an adviser

Some say the rule will clear up investor confusion, but others say the SEC didn't go far enough.

SEC advice rule: Here's what you need to know

We sifted through the nearly 1,000-page proposal and picked out some of the most important points.

Cadaret Grant acquired by private-equity-backed Atria

75-year-old owner Arthur Grant positions the IBD for the 'next 33 years.'

SEC advice rule seeks to tighten reins on brokers

The proposed rule puts new restrictions on brokers, but it is still unclear how strongly the SEC is clamping down.

SEC advice rule hearing updates

Commission says a lot of work ahead, public will have 90 days to comment.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print