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Gephardt, Baker urge tax reform - decoupled from budget debate

This article first appeared in the St. Louis Beacon, April 6, 2011 - WASHINGTON - The time is ripe to reform the burdensome federal tax code, two key players in the last major tax overhaul said Wednesday. But they also warned that a tax rewrite should be decoupled from the divisive budget debate in Congress.

Former U.S. House Majority Leader Richard A. Gephardt and former Treasury Secretary James Baker -- both of whom helped shape the landmark 1986 tax overhaul -- told the congressional Joint Committee on Taxation that a new tax reform can't be accomplished without Republicans and Democrats overcoming partisan divides and working together.

"You've got to be bipartisan, you've got to have a core group that really believes in this and is willing to do the heavy lifting to get it done," said Gephardt, a Democrat who represented St. Louis in Congress from 1977-2005 and now heads a consulting and lobbying firm. "And I think it is important to try, if you can, to disassociate [tax reform] from the budget issue."

Baker, who started working on the tax issue as President Ronald Reagan's chief of staff and later helped negotiate the 1986 overhaul as Treasury secretary, agreed that mixing the budget debate with tax reform would doom the latter. "If tax reform gets caught up in that, you won't have tax reform," he said.

During the quarter century since the last major tax overhaul, Congress has made more than 5,000 changes in the tax code -- an array of loopholes, tax credits, deductions and exemptions that have greatly complicated the system. At the same time, many businesses complain that the nation's corporate income tax is so high that it is putting U.S. companies at a disadvantage against competitors who pay lower taxes abroad.

"With Americans spending 6 billion hours and $160 billion annually to comply with the [tax] code, it is too costly and too burdensome," said U.S. Rep. Dave Camp, R-Mich., who chairs the House Ways and Means Committee and the joint tax panel. His Senate counterpart, Finance Committee chairman Sen. Max Baucus, D-Mont., said "the time has come for both individual and corporate tax reform."

Baker, who warned that the current budget gridlock is very damaging, told the lawmakers that "our country badly needs to see our government cooperate" in solving problems such as the budget deficit and tax reform. "I think the American people desperately want to see a decent tax code. They hate this tax code."

Avoiding Revenue-collection and Distribution Issues?

As a way around the current gridlock, Gephardt and Baker agreed that it would simplify the debate -- and make it easier to convince Congress and outside interests -- if any tax overhaul plan would be written in a way that would collect the same amount of revenue and keep the tax code's current levels of income distribution.

"If you're doing [tax reform] outside of the budget, you really need to avoid -- if you can, and I know it's hard -- the question of distribution and the question of how much money the government should take. You've got to be neutral on both of those topics," Gephardt said.

"There may be a lot of members of Congress who don't want to leave those questions where they are -- so that will be a major hurdle," Gephardt added. "If you can't get an agreement on that, Alternate B may be to try to get an agreement on a distribution chart that both sides could compromise on. I think it's much harder to deal with how much money the government takes. That's really a budget question."

But liberal lawmakers cautioned Wednesday that such a decoupling may be difficult in the current politically charged atmosphere in Washington. Rep. Sander Levin, D-Mich., the ranking Democrat on the Ways and Means panel, said many Democrats feel that tax reform needs to address "the dramatically increased income inequality in our country." He worried that some proposals might end provisions such as the mortgage interest deduction and the employer-provided health-care exclusion that help the middle class.

Decoupling budget from tax issues may also prove difficult. Last fall, President Barack Obama's fiscal commission suggested linking budget cuts with major changes in the tax code to help reduce future budget deficits. And some members of Congress, such as Senate Budget Committee chairman Sen. Kent Conrad, D-N.D., contend that tax reform should be part of any comprehensive federal budget plan.

On the conservative side, many Republican lawmakers and business organizations argue that any tax overhaul should focus primarily on increasing the ability of American businesses to compete worldwide, even if that means it does not collect as much revenue at first.

On the positive side, there has been lots of talk about revising the tax system. In his State of the Union address, Obama called for an overhaul of the tax code but has not pushed a specific proposal. This week, Treasury Secretary Timothy Geithner said that the administration is developing a proposal to overhaul corporate taxes.

Also, House Republicans included a framework for tax-revision in their 2012 budget plan released on Tuesday, and two senators -- Sens. Ron Wyden, D-Ore., and Dan Coats, R-Ind. -- introduced a wide-ranging tax reform bill.

Need for Bipartisan Effort to Reform Tax Code

Baucus and Camp said it make take a long while to develop a tax overhaul that can be approved by Congress. "We want to succeed," Baucus said of tax reform. "And to succeed means we've got to not rush into this too quickly."

Gephardt advised lawmakers that the political parties must work together to achieve any major change in the tax code. "I think working together or bipartisanship is like baseball or playing the piano," he said. "You've got to practice it. You've got to do it. You've got to start. And this may be a place to start."

He said real tax reform will require a president who is committed to it, strong leadership in the House and Senate and a Treasury secretary who is active in negotiations -- as Baker was in 1986. Reaching a deal on a tax overhaul "may be a way to show the country and the Congress that you can reach bipartisan agreement on very tough topics," he said.

Quoting a Missouri businessman's motto of how to forge good relations with his employees -- "You've gotta wanna" -- Gephardt said, "Tax reform has to start there. You've got to have a critical mass, at least a core group of people that really want to do this for the right reasons."

Tackling the Budget Deficit

Both Baker and Gephardt said it would be wise to keep the tax overhaul process on a separate track from the ongoing budget debate. Because of the political stalemate in Washington today, Baker said, "I don't think it's going to be dealt with until 2012."

But Baker said the deficit must be addressed. "If we didn't have the dollar as the de-facto currency of the world, we're grease. We're broke," Baker said. "We are in really bad shape. This is the No. 1 problem facing our country today. And we're going to have to deal with it."

For his part, Gephardt recalled the difficult of reaching a deal on the budget deficit with then-President George H.W. Bush in 1990, and he praised Bush for being willing to agree to tax increases as well as spending cuts to tackle the deficit.

"That's when George Bush, in my view, showed great leadership by saying that taxes and everything else was on the table," said Gephardt. "In that budget, we got about half the deficit reduction from spending cuts and half from revenue increases. I don't know whether that is something people would consider in a budget agreement now -- I rather doubt it, but I don't know."

Gephardt said: "The definition of a compromise is that everybody is totally unhappy and angry when it's done."

Rob Koenig is an award-winning journalist and author. He worked at the STL Beacon until 2013.