Senate panel’s clearing of tax breaks package show tough road for reform

The Senate Finance Committee easily cleared a more than $205 billion package of expired and expiring tax provisions on Thursday, displaying the sort of bipartisan note they said would be needed to overhaul the tax code.

In fact, panel members dubbed Thursday’s markup of the so-called “tax extenders” a practice round or spring training for the steeper challenge of overhauling the tax code. All of the committee’s Democrats voted for the measure, with more than half the panel’s Republicans joining them in support. 

Committee leaders noted that reaching an agreement had not only required the two parties to come together, but that the panel was also able to lop off more than 20 targeted provisions from a package that has often sailed through without much editing. 

“By my count that is a big step in the right direction,” Sen. Orrin Hatch (R-Utah), the panel’s ranking member, said at the markup. “To be sure, it cannot be the only step. This has to be a first step.”

But the mark-up also appeared to underscore the challenges policymakers will face if and when tax reform horse-trading starts in earnest. 

{mosads}With lawmakers leaving Washington for five weeks, Finance Committee Chairman Max Baucus (D-Mont.) also said that he thought the package could hit the Senate floor soon. 

Baucus noted that passing an extenders package would give both families and businesses certainty, and the ability to plan until the end of 2013. 

But most expect final action on the extenders to not occur until after November’s election, with senior members of the House Ways and Means Committee currently in the midst of examining the targeted tax provisions.

Ways and Means Chairman Dave Camp (R-Mich.) will also have to deal with some rank-and-file Republicans that have expressed concern about extending short-term provisions that conservatives have called crony capitalism. The House also voted Thursday to implement a timeline for tax reform in 2013. 

“We talk. We compare notes,” Baucus told reporters, referring to Camp. “He’s very amenable to what we’re trying to do. He appreciates it very much. Because it helps in the whole larger effort.”

The Finance mark-up of the extenders package wrapped up a whirlwind week for the tax-writing panel, with the measure getting passed just over 36 hours after Baucus and Hatch publicly released it. 

On Thursday, Baucus also released revisions to the original package, covering more middle-class taxpayers from the Alternative Minimum Tax for a second year and adding a production tax credit that the wind industry has called crucial. 

The measure already included a popular credit for research-and-development, and a deduction for state and local sales taxes. 

But the markup also illustrated the tug-of-war that could ensue in tax reform negotiations, something both parties have hinted could heat up in 2013. 

Sen. Chuck Schumer (D-N.Y.) continued to press to extend an expanded tax credit to help with college expenses, over the objections of some Republicans. Schumer did not propose attaching the credit to the extenders package.

Meanwhile, Sen. Debbie Stabenow (D-Mich.) defended an incentive for buying energy efficient appliances, something Sen. Tom Coburn (R-Okla.) was trying to strip out of the package. 

In all, Coburn, who has sharply criticized many targeted tax breaks as spending in the tax code, offered more than half of the 115 amendments to the extenders measure. 

“If it’s a practice round, it’s certainly not going to bode very well for tax reform,” said Sen. Richard Burr (N.C.), one of the five Republicans on Finance to vote against the measure. “This was easy compared to what tax reform is going to look like.”

“The truth is, if we do tax reform in the first quarter, all of these things are moot,” Burr added. “They’re gone.”

But Sen. Ron Wyden (D-Ore.), who inserted a provision on electric motorcycles in the package, said that lawmakers could simultaneously work toward reform while protecting home-state interests. 

“Until you get on the big canvas, and you’re looking at a trillion dollar’s worth of expenditures, you exist in this dual world,” Wyden told The Hill. “While you work for comprehensive reform, you can’t sit in a corner by yourself with your arms crossed.”