In 1986, Congress overhauled the federal tax code, purging it of various exemptions, deductions and credits and using the savings to reduce marginal rates on both individuals and firms. It was a major victory for governmental simplicity, fairness and efficiency
In 1986, Congress overhauled the federal tax code, purging it of various exemptions, deductions and credits and using the savings to reduce marginal rates on both individuals and firms. It was a major victory for governmental simplicity, fairness and efficiency — which Congresses and presidents of both parties then proceeded to undo by tweaking the tax code 15,000 times over the last quarter-century. Special breaks, large and small, have crept back into the code, like crabgrass invading a freshly weeded lawn.
Individual and corporate “tax expenditures” cost about $1 trillion in fiscal 2011, according to the Treasury Department. In the individual code, most of the benefits accrued to people who are already relatively well-off; the top fifth of income earners reap more than half of the proceeds from the 10 largest tax expenditures, according to the Congressional Budget Office. The two biggest tax expenditures, the exclusion for employer-paid health benefits and the mortgage-interest deduction, not only skew in favor of the well-off, but also distort the wider markets for health care and housing.
For the past three years, however, the Senate Finance Committee, under Chairman Max Baucus, D-Mont., has been burrowing away at this issue, poring over the code in hearings and private meetings, with the goal of writing the first major tax-reform bill since 1986 before the 113th Congress ends — and Baucus retires — next year.
The smart money is betting that this effort will founder amid the usual polarization, like so many other grand plans in today’s Washington. But Baucus is a crafty legislator, and the ranking Republican on his committee, Orrin Hatch of Utah, is on board with the effort.
The two of them have just come up with a device that could force their fellow senators to get with the program. In a letter to their colleagues on Thursday, Baucus and Hatch asked each for a list of the tax breaks he or she would keep, as if the current code were a blank slate and not the jungle of wasteful and inequitable law that it is. The Finance leaders asked for those plans to be submitted in actual legislative language within 30 days.
In other words, they’re shifting the burden of proof to those who would justify continuing tax expenditures, rather than those who would repeal them.
