By Bernie Becker – 10/08/14 06:00 AM EDT
K Street has a message for President Obama when it comes to tax reform: Talk is cheap.
Senior White House officials have started making overtures about a deal to revamp the tax system for businesses next year, arguing it’s one area where there is common ground with the GOP — an important consideration if Senate control flips to the Republicans in November.
But for tax reform to become real, lobbyists say, the Obama administration will have to translate words into action by engaging vigorously with Capitol Hill on the arduous process of crafting legislation.“I hear the happy talk,” said Jade West of the National Association of Wholesaler-Distributors. “Any time there’s talk about tax reform, we react.”
“We’re paranoid. We’ll start lobbying,” added the former Senate GOP aide. “But I just don’t see it.”
On paper, the possibility of a Democratic president and an all-Republican Congress next year would appear to be a promising set-up for tax reform.
The president, facing his final two years in office, would be grasping for an achievement to round out his tenure.
Senate Republicans, staring at an unfavorable 2016 map, would have incentive to find a legislative achievement they could bring to voters in swing and Democratic-leaning states.
And House Republicans would have the chance to tackle an issue that they have long argued should be a priority.
Speaker John Boehner (R-Ohio) made tax reform one of his five pillars for sparking the economy, and Rep. Paul Ryan (R-Wis.), the favorite to take over as the House’s top tax writer next year, has expressed a desire to tackle it head-on.
There’s even bipartisan agreement that the U.S.’s corporate tax rate is too high, the code too riddled with tax breaks and the international system for businesses long overdue for an upgrade.
Republicans have proposed reducing the top corporate rate from 35 to 25 percent, lower than the administration proposed in 2012.
With all that as a backdrop, both Jason Furman and Jeff Zients have talked up the possibility of tax reform being an area of bipartisan agreement before Obama leaves office.
Furman, chairman of the president’s Council of Economic Advisers, said last month that Obama “would certainly love to sign a business tax reform bill.”
Zients, the director of the National Economic Council, went even further, insisting that Obama’s framework to revamp the tax code for businesses was “remarkably similar” to a plan from House Ways and Means Committee Chairman Dave Camp (R-Mich.).
“That makes me optimistic that we can get something done,” Zients said last week.
“President Obama has long advocated for reforming our tax code to make it more simple and fair, and he has been clear that he is willing to work with both parties to get that done,” said an Obama spokeswoman.
“The president has put forward a framework for business tax reform that lowers our corporate tax rate, closes wasteful loopholes, and simplifies the tax code for everyone, and he will continue to call on Congress to take action.”
That talk has piqued the interest of the variety of the business coalitions in Washington pushing for tax reform.
Jeff Birnbaum of the Coalition for Fair Effective Tax Rates said Obama and his aides have only given “lip service” to tax reform in the past.
But Birnbaum, whose has long stressed that an overhaul of the code needs to also help businesses that pay through the individual system, said the interest from Boehner and Ryan, in addition to the comments from White House officials, could lead to something productive.
“That’s a pretty strong combination right there,” he said. “That’s not a bad starting place.”
Some congressional aides said they have seen increased outreach on tax reform in recent weeks from the administration. GOP staffers added that it’s possible Republicans could warm to a tax reform plan that only affects businesses, after having long pushed to reform the corporate and individual codes together.
Jon Traub of Deloitte Tax said it’s tough to say for certain how Obama would react to a GOP Senate; the president could see himself as the last line of defense for Democrats ahead of 2016.
“I don’t pretend to know what he’ll do. It’s certainly possible that he’ll say ‘I want to build a legacy,’” said Traub, a former senior aide to Camp. “Is the environment conducive for a deal? We won’t know that for awhile.”
None of that means that longstanding roadblocks to tax reform have disappeared, especially after Camp’s broad tax reform draft this year found few champions. Several top lawmakers, including Sen. Charles Schumer (D-N.Y.), have downplayed the chances for tax reform in the next Congress.
Democrats and Republicans remain divided over whether a revamped tax code should bring in more revenue. Obama has sounded open to rewriting the corporate tax system without added revenues, as Republicans have sought, but also wants an upfront influx of revenue to cover infrastructure spending.
The Urban-Brookings Tax Policy Center recently projected that nearly $840 billion worth of business income was reported on individual tax forms in 2012. Analysts say it would be difficult to craft an overhaul that included both those companies and traditional corporations without revamping the entire individual system.
Plus, as the recent debate over corporate inversions shows, taxes remain a politicized issue. Even as his aides were talking up tax reform, Obama criticized Ryan last week, stressing that the Wisconsin Republican is still seeking to lower the top rate for the highest earners.
Ryan himself hasn’t sounded overly optimistic about the prospects for tax reform, and has even floated officially adopting more “dynamic” scoring for tax bills. The GOP says that would more fully account for economic growth spurred by tax changes, but also would deepen the divide between the parties.
Ken Kies of the Federal Policy Group predicted that Obama would likely have to give ground on some big issues — whether to protect most offshore corporate income from U.S. taxation or lower the corporate rate to 25 percent, for instance — to strike a deal with an all-GOP Congress.
“In order for this to turn into real progress, they’re going to have to come around to some important policy positions that Republicans have on tax reform,” said Kies, a former GOP aide who worked on the 1986 overhaul of the tax code.
But a former Democratic aide now on K Street said that it would be up to both the White House and GOP lawmakers to find more common ground on tax reform.
“At the end of the day, he’s got to sign it,” the lobbyist said about Obama. “But a lot of it’s going to depend on whether a Republican Congress is willing to work with him.”
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