Tax

U.S. Senate’s Baucus sees opportunity to reshape tax code

'Out of control' tax code needs to be updated for this century: Senator Max Baucus

Congress has a once-in-a-generation opportunity to rewrite the U.S. tax code to promote job growth and reduce the federal budget deficit, said Senator Max Baucus, chairman of the Senate Finance Committee.

Jobs, innovation, competitiveness and opportunity should be four principles that govern the tax code, he said today in a speech at the Bipartisan Policy Center in Washington. The Montana Democrat provided few specific details on his ideal tax code, such as a top rate, a revenue level or the fate of popular tax breaks.

“Our tax code is growing out of control,” said Baucus, 70. “It’s time we had a tax code for the 21st century.”

Unless Congress acts, tax rates for wages, capital gains, dividends and estates will increase at the end of the year as tax cuts expire. The increases are part of a so-called fiscal cliff that includes automatic spending cuts and could push the U.S. into a recession if Congress does nothing, according to the Congressional Budget Office.

Baucus provided few hints about what he thought Congress should do in the near term, saying lawmakers shouldn’t lock themselves into positions before the election that inhibit their ability to act in the lame-duck session afterward.

“My view is everything is on the table,” he said. “That’s a psychology that I think is very important to get people talking.”

High Earners

President Barack Obama has proposed higher tax rates for the top 2 percent of earners and limits on their ability to take tax breaks. He supports lower corporate tax rates, coupled with the removal of tax breaks.

House Republicans, in contrast, adopted a budget that calls for no additional revenue and 25 percent top rates on individuals and corporations, down from 35 percent today. They haven’t specified what tax breaks they would eliminate or curtail.

Panelists who spoke after Baucus today noted his cautious approach to offering details, which fits with his track record of trying to develop consensus bipartisan proposals.

“There was nothing that he said that impedes bipartisan cooperation,” said Robert Greenstein, president of the Center on Budget and Policy Priorities, a Washington group that advocates policies that benefit lower- and middle-income Americans.

Working Together

Baucus said he hoped to speak with other members of his committee next week about expired provisions, such as the research and development tax credit, to see if those are issues on which lawmakers can start working together without having to consider Democratic proposals for the “Buffett rule” tax on millionaires or Republican proposals to repeal the estate tax.

He called for changes to the international tax system to help make U.S. companies more competitive and prevent profits from being shifted to overseas tax havens, saying the U.S. has the “worst of all worlds.”

He didn’t say whether he would support a switch to a territorial system that would exempt taxation of most foreign profits, like the one his House counterpart, Dave Camp, has proposed.

Asked about Camp’s plan after the speech, Baucus said: “I’m not sure what he proposed. None of us know precisely. The main thing is this: I believe that too often this town, we’re focusing on mechanics.”

Camp’s Proposal

Camp, a Michigan Republican and chairman of the Ways and Means Committee, has proposed coupling an extension of expiring tax cuts with a process to require a tax overhaul in 2013.

Baucus said he would consider such triggers, which he noted have been discussed before in bipartisan efforts.

He said he plans to hold a hearing soon on the plan proposed by the leaders of the president’s fiscal commission, former Senator Alan Simpson, a Wyoming Republican, and Erskine Bowles, former President Bill Clinton’s White House chief of staff. Baucus served on the panel and opposed the proposal.

He also said he would hold a hearing on a plan developed through the bipartisan center by former Republican Senator Pete Domenici and Alice Rivlin, former director of the Congressional Budget Office.

–Bloomberg News–