WASHINGTON – President Obama and the Republican-led Congress are in agreement that tax reform needs to be a priority this year but the two sides can’t find common ground on how to achieve that goal.
In his State of the Union speech, Obama laid out a sweeping plan that raises some corporate taxes and the estate tax while simultaneously providing cuts for middle class families. The capital gains tax would go from 25 percent to 28 percent, and the proposal would impose a fee on the nation’s largest banks.
During an appearance in Boise, Idaho, in wake of his address before Congress, Obama said he believes “in helping hardworking families make ends meet and I believe in giving all of us the tools we need so that if we work hard we can get good-paying jobs in this new economy.”
“As Americans, we don’t mind paying our fair share of taxes, as long as everybody else does,” Obama said. “Where we get frustrated is when we know that lobbyists have rigged the tax code with loopholes, so you’ve got some corporations paying nothing while others are paying full freight. You’ve got the super-rich getting giveaways they don’t need, and middle-class families not getting the breaks that they do need.”
Obama asserted that the White House and Congress need to “close the loopholes that let the top 1 or .1 or .01 percent avoid paying certain taxes, and use that money to help more Americans pay for college and child care. The idea is, let’s have a tax code that truly helps working Americans, the vast majority of Americans, get a leg up in the new economy.”
Republicans haven’t laid out their scheme yet although the House package likely will look much like the Tax Reform Act of 2014, which among other things restructured individual and corporate rates and provided a larger standard deduction and a larger child tax credit. It’s fair to say whatever emerges won’t look anything like the program promoted by the president. It is expected to rely on business tax breaks – likely a cut in the corporate tax which they complain is the world’s highest – in hopes of spurring economic growth. Tax hikes are not in their sightline.
“A $320 billion tax hike to fuel more government spending is not going to promote a healthy economy or improve the standard of living for working Americans and their families,” said Sen. Orrin Hatch (R-Utah), the new chairman of the Senate Finance Committee who will be involved in any tax code changes.
Expanding the estate tax and raising the rates on capital gains, Hatch said, “makes clear this White House is more about redistribution and populist class warfare than about actual bipartisan tax reform. In fact, if anything, these misguided proposals would only further clutter up the tax code and make it more confusing for taxpayers. By putting poll-tested politics ahead of sound policy embraced by both parties, the president regrettably distanced himself from achieving tenable bipartisan results.”
On the other side of the Capitol, Rep. Paul Ryan (R-Wis.), the new chairman of the tax-writing House Ways and Means Committee, was equally dismissive of the administration’s initiative, characterizing it as “misguided.”
“A $320 billion tax hike is the last thing we need,” Ryan said. “What we really need is to make our tax code simpler, flatter and fairer, so we can create more jobs. The American people deserve real solutions. House Republicans are going to do all we can to build a healthy economy for working families. There’s a lot we can accomplish in the next two years, and we’re ready to work with the president to find common ground.”
That common ground may prove hard to come by. Last month, before accepting the reins of the Senate Finance Committee, Hatch laid out his own seven principles for tax reform. Chief among them was addressing corporate taxes.
“The combination of a high corporate tax rate, worldwide taxation, and the temporary nature of some tax incentives make U.S. companies less competitive when compared to their foreign counterparts,” Hatch said. “In addition, U.S. multinationals are discouraged from repatriating foreign earnings because of the U.S. corporate tax that applies at the time of repatriation – a corporate rate that is the highest in the industrialized world.”
Reform, he said, must reduce high tax rates on businesses “thereby placing worldwide American companies on a level playing field with their foreign competitors when conducting business in other countries.”
“The result would be more worldwide American companies establishing or retaining their corporate headquarters in the United States, more exports to global markets and retention and reinvestment of money in the United States rather than abroad,” Hatch said.
Citing former President Ronald Reagan, Hatch said tax reform needs to promote economic growth, fairness and simplicity. Permanence also needs to fit into the equation, he said, noting that “almost 100 tax provisions that will expire between 2013 and 2023.”
“Individuals and businesses need to be able to rely on provisions in the tax law for planning purposes,” he said. “The lack of certainty in our tax laws hinders job creation and stifles economic growth. We need a tax system that no longer threatens to change from year to year.”
Regardless, despite the president’s plea, raising taxes is a non-starter.
“Tax reform should not be used as an excuse to raise taxes on the American people or on U.S. businesses,” he said. “Any effort to use tax reform as a revenue-raising exercise is a needless distraction.”
“Tax reform is no longer optional, Mr. President, it is essential,” Hatch said in a floor speech. “If we’re going to get our economy moving again, we need a tax code that will stop standing in the way. And, make no mistake, promoting job creation and economic growth is the first and most important step we need to take in order to address our nation’s most pressing problems.”
“Republicans stand ready to act and implement smart policies that will allow hard-working taxpayers to keep more of the money that they earned, spur capital investment, and create a better environment for job growth. We can achieve these goals through a bipartisan remake of the code that creates a simpler, fairer, more efficient tax system that encourages savings and investment and puts American job creators at a competitive advantage. I hope the President comes to the table with a more serious proposal.”