Senators Max Baucus and Orrin Hatch, the Democratic chairman and the ranking Republican of the Senate Finance Committee, have invited all members of the Senate to begin the debate over tax reform without any basic agreement on how much revenue is needed.
Under their “blank slate” approach, they ask their Senate colleagues to start with the assumption that the tax code has no “tax expenditures” (exceptions to the overall rules in the form of tax breaks for specific activities or situations). They ask Senators to tell them which tax expenditures they think are warranted and should be preserved in a newly overhauled tax system.
But the entire point of this exercise, and the entire point of reducing or eliminating tax expenditures, is still not settled. In their letter to colleagues, Baucus and Hatch explain:
While Members of the Senate have different views on whether the revenue raised from eliminating tax expenditures or other reforms should be used to lower tax rates, reduce the deficit, or some combination of the two, we believe that everyone should understand the trade-offs involved when adding tax expenditures back to the tax code.
We will have more to say about how lawmakers should determine which tax expenditures to repeal, preserve or reform. But for now it’s worth noting that the Senate’s top tax-writers believe that lawmakers can and should engage in a detailed discussion of tax provisions before they come to any agreement on something as basic as how much revenue is needed to fund public services and public investments. It’s almost as if they forgot that the whole point of the tax system is to raise revenue.
As we have explained before, our current tax laws will collect revenue equal to 19.1 percent of the economy a decade from now. We know this is unsustainable because even during the Reagan years, government spending equaled between 21.3 percent to 23.5 percent of the economy.
Congressional Democrats seem to be vaguely aware of this but have been far too timid in their tax proposals. Most recently, the budget resolution approved by the Democratic majority in the Senate (with no Republican votes) would raise revenue equal to just 19.8 percent of the economy in a decade, and offers no specifics whatsoever on how to do that.
Meanwhile, the budget resolution approved by the Republican majority in the House of Representatives would raise the same revenue level as current law (19.1 percent of the economy), but would overhaul the tax rules so that the very rich pay a smaller share of the total.
Chairman Baucus has attempted for a long time to move the tax reform conversation forward despite this utter lack of consensus on the basic question of revenue. As we have argued before, “This would be like holding bipartisan talks on immigration reform - if one party supported a path to citizenship while the other party pledged to round up all undocumented immigrants and deport them without exceptions.”
To their credit, Baucus and Hatch, in their letter to colleagues, do mention “maintaining the current level of progressivity.” But we have already shown that America’s tax system overall is just barely progressive as it stands. Putting a great deal of time and energy into an overhaul of the tax code that does not make our tax system more progressive or raise more revenue than the current rules would be a waste of time and certainly would not be “reform.”