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Tax Reform Fight May Boost K Street’s Profits

“It would be out of line, presumptuous and inaccurate for someone to speak for the business community,” she said. “Nobody is lining up on one side or the other yet.”

Take, for example, the issue of research-and-development tax credits, whose extension is included in the tax bill under debate in Congress.

While high-tech and manufacturing operations have heavily lobbied for the tax incentives, West said, “my guys don’t care about the R&D credit.”

Dorothy Coleman, the vice president for tax and domestic economic policy at the National Association of Manufacturers, said the tax code should be restructured to provide lower corporate rates to help make U.S. companies more competitive internationally. But she said NAM members also want any overhaul to include the R&D tax credit.

Coleman acknowledged the difficulty in revamping the code.

“If it were easy to do, it would have been done a long time ago,” she said.

‘Getting Royally Hosed’

Ken Kies, a tax specialist and managing director of the Federal Policy Group, said that even if Congress approves a revenue-neutral tax reform plan, few interest groups will walk away satisfied.

“The losers are all convinced they are getting royally hosed, and the winners don’t step up and thank you because they are nervous,” he said.

The experience of the 1986 tax reform law has made many parties wary of such deals, Kies said. He added that while the 1986 law reduced rates and eliminated many deductions within seven years, many of the rates crept back up. Over time, lawmakers also added more deductions.

As a result, “people are going to be very reluctant to give up deductions for lower rates,” Kies said.

He also said it will be difficult for Obama to push tax reform when he is running for re-election because of the difficult choices to be made that will alienate various interest groups. He said that President Ronald Reagan didn’t seriously begin promoting the tax overhaul until the end of 1984, after he was re-elected.

Oddly, if Obama decides to take up tax simplification, he could find himself allied with tea party activists who were among his most vocal critics in the recent midterm elections. While tea party members emphasized their opposition to what they perceived as Obama’s big-government health care and stimulus plans during the campaign, many are proponents of tax reform.

“There’s nobody but lobbyists in Washington who would defend the current tax code,” said Max Pappas, vice president of public policy at tea-party-aligned FreedomWorks.

The leader of FreedomWorks, former House Majority Leader Dick Armey (R-Texas), has been a longtime proponent of the flat tax, which would eliminate deductions in the code.

If Obama proposes a revenue-neutral overhaul tax plan, he may find new friends in the tea party movement, Pappas said.

“I think there is some hope there if he is sincere about fundamental tax reform,” he said.

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