Although many thought the momentum for tax reform had stalled, two developments this week have reinvigorated the efforts to reach a deal.
On Wednesday, February 13, 2013, Ways and Means Committee Chairman Dave Camp (R-MI) and Ranking Member Sandy Levin (D-MI) announced the formation of 11 separate Ways and Means Committee Tax Reform Working Groups.
The groups will be led by one Republican Member serving as Chair and one Democratic Member serving as Vice Chair. Each of the 11 groups will review current law in its designated issue area and then identify, research and compile feedback related to the topic of the working group. The designated issue areas are: (1) charitable/exempt organizations; (2) debt, equity and capital; (3) education and family benefits; (4) energy; (5) financial services; (6) income and tax distribution; (7) international; (8) manufacturing; (9) pensions/retirement; (10) real estate; and (11) small business/pass throughs.
The working groups will be responsible for compiling feedback from: (1) stakeholders; (2) academics and think tanks; (3) practitioners; (4) the general public; and (5) colleagues in the House of Representatives. Once the working groups have completed their analysis, the Joint Committee on Taxation will prepare a report for the full Committee, due by April 15, 2013, that describes current law in each issue area and summarizes the information gathered by the Committee Members.
At the Senate Finance Committee nomination hearing of Jacob Lew for Treasury Secretary, Mr. Lew uttered some provocative language on comprehensive tax reform. In particular, Mr. Lew consistently reiterated the need to broaden the tax base in order to lower tax rates for both individuals and businesses. He stated that it would be a challenge to lower the corporate and individual rate to 25 percent, maintaining that it could be achievable only with substantial broadening of the tax base.
Many had thought the Administration was insistent that any tax reform process be a revenue raising initiative in order to pay down the deficit. This position is sternly opposed by Republicans. However, if Mr. Lew’s answer details a shift in the Administration’s thinking, that tax reform can raise revenue and lower rates, it is conceivable that there will be a scenario in which some Republicans are interested in striking a deal that results in lower marginal tax rates.
Now is the time to get involved in this process. The working groups provide a significant opportunity for input, and Mr. Lew’s testimony may provide an opening for Republicans and the Administration to work out an agreement. Notably, the last major tax reform, enacted in 1986, involved similar working groups charged with analyzing the pertinent issues. If bipartisan solutions to tough issues can be culled through this process, it bodes well for reaching a bipartisan and bicameral agreement on tax reform that could be signed by the President.