Democrats split on scope of tax code overhaul

Reuters News
Posted: Feb 05, 2013 5:50 PM

By Kim Dixon

WASHINGTON (Reuters) - The top Democrat on the Senate's tax committee on Tuesday veered slightly from President Barack Obama's call for quick tax code fixes to avert looming budget cuts, reflecting a split among Democrats on the scope of a possible tax code overhaul.

If Congress cannot strike a deal to avert $85 billion in broad federal spending cuts set for March 1, as appears likely, it should at least pursue a short-term fix that includes closing "special interest" tax loopholes, Obama said on Tuesday.

"There is no reason that the jobs of thousands of Americans who work in national security or education or clean energy ... be put in jeopardy just because folks in Washington couldn't come together to eliminate a few special interest tax loopholes," Obama said in White House remarks, adding that targeted spending cuts should also be part of the solution.

The March 1 deadline is part of an ongoing saga of partisan warfare over taxes and spending on Capitol Hill, with Democrats arguing for a mix of revenue and spending cuts, and Republicans pushing for spending austerity alone.

Democrats control the White House and Senate, while Republicans control the House of Representatives, so compromise will be required for any major tax code overhaul.

Democrats are divided about how to tackle the bipartisan goal of revamping the entire tax code, which has not been overhauled since 1986.

Tax writers, including Democratic Senator Max Baucus of Montana, have been laying the groundwork for a tax code revamp. He may release an options paper or discussion draft as early as next month. A moderate who is up for re-election in 2014, Baucus put out a carefully worded statement after Obama's latest comments.

"When it comes to tax reform, we must avoid the urge for the quick fix," Baucus said. "We are not going to have multiple bites at this apple. I want to ensure that when we do tax reform, we do it right."

The comments by Baucus reflected a split in the party about whether or not they should pursue a tax revamp to raise revenue for deficit reduction.

Baucus is "wary of efforts to pick off small pieces in the tax code for short-term fixes," said Jim Kessler, a vice president for policy at the think tank Third Way and former Democratic congressional staffer.

Baucus has been working with Michigan Republican Dave Camp, chairman of the House of Representatives' tax panel. The two have held several joint hearings on the issue.

Other Democrats, including New York Senator Chuck Schumer, have been pushing the idea of bigger tax changes to raise revenue and highlight the differences between the parties on taxing the wealthy.

"So Baucus' view is not shared throughout the Democratic Party," Kessler said.

Senator Bernie Sanders of Vermont, an Independent who caucuses with Democrats, on Thursday plans to introduce legislation to raise $590 billion over a decade by closing tax sheltering techniques used by big companies.

That effort has virtually no chance of moving on its own, outside of a full-scale revamp.

(Reporting by Kim Dixon; Editing by Kevin Drawbaugh and Stacey Joyce)