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Ready for Action

12:11 PM, Jul 1, 2013 • By GEOFFREY NORMAN
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There is some movement in Washington toward reforming the tax code which may sound like mere legislation but, as Nancy Cook of the National Journal writes, is being treated more like combat by some interested parties.

Since the beginning of 2013, companies, trade associations, and advocacy groups have hired new representation, ramped up lobbying efforts, and formed new coalitions with such vague-sounding appellations as BUILD or ACT, all in the name of preserving the status quo—or at least, groups’ individual tax breaks or provisions. 

All this is in response to retiring Senator Max Baucus's plan to rebuild the tax structure starting from the ground up. That is ... by carefully scrutinizing the special interest exemptions, deductions, etc. that we have all grown wearily accustomed to and that are the means by which tax lawyers and K Street lobbyists earn their daily bread.

The nomenclature here is interesting. In Washington speak, something like the mortgage interest deduction is considered a "tax expenditure," the implication being that the government is shelling out rather than that you are keeping a little of your own money.  Whether or not the mortgage interest deduction is wise economic policy, according to this line of thinking, it is a cost to the government and one that it can legitimately consider doing away with or, at least, trimming.  

So, by this line of thought, we arrive at a point where:

unchecked growth of tax expenditures ... now costs the federal government roughly $1.3 trillion a year, according to the nonpartisan Joint Committee on Taxation. (For context: That’s more than the federal deficit totaled in 2011.) This growth makes them a target, as the two parties look for extra revenue that can be used to either lower tax rates or pay down the deficit.

The "blank slate" approach employed by Baucus and his Republican colleague on the Senate Finance Committee, Orrin Hatch, will require backers of the various "tax expenditures" to come forth and defend their wisdom and necessity.  If they don't make the case, the loophole will be closed. Honest.

What is interesting about this approach is that Baucus and Hatch have been around writing the legislation behind the tax breaks and twisting arms to get it passed for a long, long time now.  So they have been persuaded before that these "tax expenditures" had merit. Will they strangle their own babies?  And, by the way, a lot of those babies are all grown up and will likely fight back. Furthermore, Baucus and Hatch have seeded K Street with former staffers who can accurately guess the size of a loophole, down to the millimeter. History is on their side.

If we are to start from scratch, one thinks, how about with a fresh set of players? 

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