By Donna Smith
WASHINGTON (Reuters) - While party leaders battle over a last-minute payroll tax deal, the two top tax writers in Congress are quietly reaching across the partisan divide to build a bridge for what could become a major restructuring of U.S. tax law.
Senate Finance Committee Chairman Max Baucus and David Camp, who chairs the tax-writing Ways and Means Committee in the House of Representatives, may not always see eye-to-eye.
For instance, Baucus, a Democrat, played a key role in writing President Barack Obama's healthcare overhaul. Camp, a Republican, has vowed to work to repeal it. Baucus, 70, is from a ranch in Montana; Camp, 58, from small-town Michigan.
But the two powerful chairmen firmly agree on this: the tax code, riddled with special interest breaks and loopholes, is not serving the economy well and badly needs an overhaul.
"There is an intense desire to see tax reform," Camp said in an interview. "Our economy isn't growing as it should. Tax reform should help that."
At the moment, House Republicans and Senate Democrats are fighting over extending a popular payroll tax break for workers that will expire on December 31 and the outcome is unclear.
Despite the bitter struggle, Baucus and Camp have already started to advance the process of tax reform.
In a rare show of bipartisanship in the middle of last summer's vitriolic debate over raising the U.S. credit limit, Baucus and Camp in July convened the first joint hearing by the Senate Finance and House Ways and Means committees in 71 years.
They recently held a second joint session and they hope to hold more. The goal? Educate lawmakers and the public on how to fix the tax code, a monumental project that few expect to be undertaken next year with presidential and congressional elections looming, but which some see as feasible in 2013.
Public dissatisfaction with the tax system is at historically high levels, said a poll released on Tuesday.
RICH PAY TOO LITTLE-POLL
The Pew Research Center for the People and the Press said 59 percent of 1,521 adults polled this month said the tax system is so flawed that Congress should completely change it. Pew said 57 percent identified as their top concern a "perception that wealthy Americans are not paying their fair share of taxes."
Only 11 percent said they were bothered by the amount of tax they personally pay. About half said they feel they pay about the right amount of taxes, but only 43 percent said they view the tax system as fair, down from 51 percent eight years ago.
Republicans are pushing to reduce top tax rates for corporations and individuals to as low as 25 percent. They argue that would boost economic growth and help companies compete globally. The current 35 percent top individual tax rate is set to jump to 39.6 percent in 2013 if tax cuts enacted under President George W. Bush are allowed to expire.
Obama and the Democrats are calling for higher taxes on the wealthy to lower deficits and avoid cuts to the Medicare healthcare program for the aged and other government benefits.
The partisan conflict over taxes last month doomed a congressional "super committee" on deficit reduction to failure.
Baucus and Camp share the hope that their joint efforts will help lay the groundwork for a tax overhaul in 2013, when a new Congress will be seated and either Obama will start a second term, or a new president will occupy the White House.
Baucus and Camp served together on the 12-member bipartisan super committee, which was tasked with pulling together a package to reduce deficits by at least $1.2 trillion over 10 years. It disbanded in failure.
BAUCUS: 'WE JUST CONNECTED'
Baucus said, in a separate interview, that he and Camp met frequently during the nearly three months of talks and came closer to reaching agreement on a deficit reduction package than any of the various sub-groups that had formed within the panel.
Their relationship reached further back than the committee, though, to the end of 2010 when the two cooperated on extending several expiring tax provisions, including the across-the-board tax cuts enacted under President Bush.
"Our mutual interest in (tax reform) grew out of that experience," Camp said.
"We just connected. Some people do and some don't. It's that simple," said Baucus, a centrist known for his ability to work with Republicans. Camp, too, is seen as someone who can reach across the aisle to work with the other party.
The two continue to meet regularly, at least once a week, to go over issues. Their powerful committees are not only in charge of taxes, they also have a say over the Social Security retirement program, as well as Medicare and other federal health programs. All of these face financial pressures for reform.
Montana and Michigan are as different as two states can be, but both have strong agriculture interests and share borders with Canada. Camp and Baucus share a common interest in trade.
Earlier this year they negotiated a bipartisan deal on a worker retraining program that cleared the way for approval of U.S. trade deals with Colombia, Panama and South Korea.
It will take more than a solid working relationship between the chairmen, however, to battle Washington's tax lobbyists and other interest groups poised for a fight over tax policy.
FRIENDSHIP NOT ENOUGH
"I don't think that Baucus and Camp can alone decide that we're going to have tax reform next year or the year after that," said Alex Brill, a former Republican Ways and Means Committee aide who is now with the American Enterprise Institute, a conservative think tank.
"Working cooperatively is a good sign," said Clint Stretch, a policy analyst at Deloitte Tax LLP. "But it does not change the fundamental disagreements between the political parties, which are staggering."
It will take presidential leadership and commitment by House and Senate leaders to battle the special interests and overcome political divisions. Senator Orrin Hatch is also a major player. He could end up as chairman of the finance committee if Republicans win control of the Senate in next year's elections.
Both Camp and Baucus are said to have a good working relationship with Hatch.
The last time the U.S. tax code underwent a complete overhaul that slashed the number of deductions and preferences was in 1986 when Republican Ronald Reagan was president.
The business community is clamoring for change. Temporary tax breaks that are allowed to expire, only to be renewed again by Congress, complicate planning and make companies less interested in taking on new risk. "The level of uncertainty is close to intolerable," Stretch said.
(Reporting By Donna Smith; Editing by Kevin Drawbaugh and Eric Walsh)
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