Starting From Scratch: Baucus, Hatch Outline Tax Reform Approach
The lawmakers leading the tax reform effort in the Senate say they plan to start with a “blank slate” that omits all current tax breaks and requires senators to make a case for bringing them back.
Senate Finance Committee Chairman Max Baucus (D-MT) and Ranking Member Orrin Hatch (R-UT) proposed a “blank-slate” approach to tax reform that would remove virtually all existing deductions and credits from the tax code and give legislators an opportunity to make the case for which tax breaks should be restored.
The plan, put forth in a “Dear Colleague” letter to Senate offices, is not a detailed framework for reworking the tax code but is intended to be a starting point for a more defined legislative package. In the letter, Baucus and Hatch stressed that tax expenditures and other provisions should only be added back if they help the economy grow, make the tax code fairer, or effectively promote other important policy objectives. Senators have until July 26 to submit their proposals. Baucus and Hatch said they would give special attention to proposals that are bipartisan.
“This blank slate is not, of course, the finished product, nor the end of the discussion,” Baucus and Hatch said. “Some of the special provisions serve important objectives. Indeed, we both believe that some existing tax expenditures should be preserved in some form. But the tax code is also littered with preferences for special interests.”
To help inform submissions, Baucus and Hatch had the Joint Committee on Taxation (JCT) analyze the relationship between tax expenditures and the current tax rates if the current level of progressivity is maintained. JCT and Finance Committee staff determined that every $2 trillion of individual tax expenditures that are added back to the tax code would, on average, raise each of the seven individual income tax brackets by between 1.3 and 2.2 percentage points from what they would be under the blank slate.
“These estimates demonstrate that the more tax expenditures we allow in the tax code, the less we will be able to reduce tax rates or reduce the deficit,” the senators said. “As we work to craft a tax reform bill, we will bear these trade-offs in mind.”
The blank-slate approach was endorsed today by House Ways and Means Committee Chairman Dave Camp (R-MI), who said the Baucus-Hatch plan was “welcome news for Americans who deserve a simpler, flatter, fairer tax code that leads to more jobs and higher wages.”
“This significant step forward underscores that the Senate and House are on the same page as they work in a bicameral, bipartisan manner to fix our broken tax code,” Camp said in a statement.