Tax Reform Too Complicated for Debt Panel Time Frame

Daunted by partisan gridlock, a short deadline and sheer logistical magnitude, members of the Joint Committee on Deficit Reduction and Congressional leaders are coming to grips with the fact that any wide-scale tax reform will need to be punted to a legislative vehicle that couldn’t be considered until months after the super committee’s deadline.

“The joint committee could agree on a framework — rules that would guide the process — that would pass the House and Senate as part of their deficit reduction package. Ways and Means and Senate Finance would then write the bill,” a GOP leadership aide said.

The plan is far enough along that Senate Democrats are already concerned about whether Republicans could find a way to avoid the issue of increasing tax revenues in the deficit panel by pushing that part of any deal to the second round.

“Democrats are fully on board with tax reform that lowers rates, simplifies the tax code, closes loopholes and improves the economy, but we will not allow this to become just another attempt by Republicans to weasel out of including revenues in a balanced deficit reduction package,” a Senate Democratic aide said.

The idea is not completely unexpected, but it does show that members of the debt panel are starting to realize the scope of what is required of them under what, at least historically, is a shockingly short deadline.

“It’s like getting assigned your Ph.D. dissertation and being told you have six weeks to do it,” said Steve Ellis, vice president of Taxpayers for Common Sense.

In his speech to the Economic Club of Washington last week, Speaker John Boehner conceded, “It’s probably not realistic to think the joint committee could rewrite the tax code by Nov. 23.”

But the Ohio Republican said the panel can “lay the groundwork” for tax reform.

In private briefings with members of the super committee, both the Joint Committee on Taxation and the Congressional Budget Office have explained that doing tax reform in the short lifespan of the debt panel is essentially impossible, saying that the difficulty of the process and time spent scoring various provisions will require more time than the debt panel has.

There are many problems, experts say.

For instance, changing tax provisions on one sector of the economy will have effects throughout that sector and into other sectors. The breadth of change prompts an emphasis on treading carefully.

Second, the panel is already weighing major changes on entitlement spending programs and discretionary spending cuts, not to mention President Barack Obama’s proposed deficit reduction plan, which includes tax increases.

Although debt panel members have begun ramping up their meetings this week, at some point the number of issues before the committee could max out its bandwidth.

To get an idea of how heavy the lift is, consider the last time Congress passed a large tax reform bill — in 1986.

President Ronald Reagan urged tax reform in his January 1984 State of the Union address, followed by a Treasury Department study in November 1984, a proposal sent to Capitol Hill in May 1985, House passage in December 1985, Senate passage in June 1986, passage of the conference report in September 1986 and Reagan’s signature on Oct. 22, 1986.

Then, the tax-writing committees in both the House and Senate held more than 30 days of hearings on the legislation. The entire process took 1,001 days from start to finish — almost three years.

The life span of the debt panel, from Aug. 11, when the committee’s final members were selected, to Nov. 23, the statutory deadline for the committee to report its bill, is 104 days — about one-tenth the length of the 1986 process.

“There’s no way you can get it done” in the super committee, said Ken Kies, managing director of the Federal Policy Group.

Kies also questioned whether any framework for a second round of legislation would stick. “It doesn’t bind anybody,” he said. “What would the words on paper say?”

Another wrinkle is next year’s expiration of the 2001 and 2003 tax cuts. That could give Democrats leverage in negotiations, since Republicans will want to keep the lower rates in place.

Ellis was more optimistic, arguing that a second-round tax reform vehicle with “super” powers could work.

“If you set the deadline for the summer, they don’t have much choice,” he said.

Ellis noted that the president’s deficit reduction commission, led by former Sen. Alan Simpson (R-Wyo.) and former Clinton White House Chief of Staff Erskine Bowles, did considerable work on the topic. The commission report’s tax reform section is only eight pages, however.

A 2005 report commissioned by President George W. Bush is more substantive. That commission, led by former Sens. Connie Mack III (R-Fla.) and John Breaux (D-La.), came under fire quickly because of a recommendation to phase out the mortgage interest deduction, and it was shelved.