The Summit Breakouts: Tax Reform, and a Menu of Options
The pool report by Lori Montgomery of The Washington Post on the Fiscal Responsibility Summit's breakout session on tax reform follows:
The session was led by Treasury Secretary Tim Geithner and CEA chair Christine Romer (filling in for the absent Paul Volcker) in Room 248 of the EEOB (which is the OMB director's conference room).
They sat in the center of a long oval table, surrounded by members of Congress. Senators were Tom Carper (D-Del.), Olympia Snowe (R-Maine), Jon Kyl (R-Ariz.) and Max Baucus (D-Mont.). House members were Charlie Rangle (D-NY.), Dave Camp (R-Mich.) Nydia Velazquez (D-NY), Thad McCotter (R-Mich.), Jim Matheson (D-Utah) and David Price (D-NC). There was a bit of confusion regarding Price, however, because Geithner seemed to be expecting Tom Price (R-Ga.), which is what Price's nametag said (he crossed out Tom and penciled in David.).
Geithner and Romer did very little of the talking. They opened by declaring their intention to begin a conversation about tax reform and other issues.
Romer asked those in the room to "discuss the menu of options" that might be considered regarding tax reform, and asked people to "think about where are the places we agree and where do we disagree." Though the session was billed as a session on taxes, Romer said it was "just a chance to have a smaller conversation on whatever issues you may want."
The rest of the session made fairly clear that to the extent that this administration hopes to reform the tax code, they have made no decisions about how to do it.
Baucus led off. "Clearly, we all agree it's good we're doing this," he said, adding that "the only answer is a comprehensive solution, which means nothing 's off the table." He quickly dove into health care policy, saying the administration should look at the cost of excluding health care coverage from taxation, which he estimated at between $140 b and $200 b a year.
"One question is the degree to which we're willing to even look at health expenditures," Baucus said. "It's the biggest target. It should at least be looked at," he said, adding that he is not suggesting repeal but perhaps some limits.
Baucus also talked about fixing a situation where Congress devotes endless hours to extending hundreds of tax extenders, not to mention the AMT. He said some of the extenders should be eliminated and some should be made permanent. Everyone at the table seemed to agree that Congress should get rid of the AMT, or at least make the patch permanent.
Rangel went next, and spoke about closing loopholes to pay for a big reduction in the corporate tax rate, an idea he's been pushing for some time. He added that he is "very anxious to see what direction the administration wants to go on health care."
Geithner's response: "I think I'm allowed to say: We have not made those decisions yet. Obviously, we're going to do health care. But on the tax side, beyond that, we really are looking for areas where we can make meaningful progress. That's why we wanted to start by hearing from you."
Carper wanted to talk about cost overruns at the Pentagon, surplus property and giving the president a line-item veto, at least temporarily, for two to four years. He also brought up the tax gap, prompting Geithner to ask "what's achievable and what's really hard.?" (For the record, Carper thinks we should have more reporting on non-interest-bearing accounts and credit card use and make sure government contractors pay their taxes.)
Baucus: "Basically the answer is more information reporting." Rangel: "But politically...." Baucus: "That's the problem." (Translation: the IRS would love to have more data on more kinds of transactions, but people don't like the IRS snooping any more than it already does, which is why much of the $345 billion tax gap will never be collected.)
Snowe then delivered an impassioned plea for biennial budgets and comprehensive tax reform. "I do think we have to take this window of time and reexemine the entire tax code," she said, "rather than rushing headlong into making piecemeal precipitous chances." She noted the chronic mismatch between spending and tax collections, and appealed for a simpler tax code that would improve compliance.
"That's a challenge," Geithner replied when she finished, offering no other indication of the administration's thoughts.
About this time (2:30 p.m.), Kyl wandered in. Geithner brought him up to date: "You heard people say, Come at this through health care or energy. Have those things drive how we change the tax code. Others say we need comprehenive reform," focusing on corporate rates or the tax gap. Geithner suggested that "One way to start" might be to create "an informal working group" that would bring lawmakers and administration officials regularly "to figure out how to move forward."
Kyl had a different subject to address, however, and that was the president's stated intention to let the Bush tax cuts lapse in 2011 for the wealthy and to close corporate tax loopholes. "The idea of raising taxes either on business or upper income earners ... could have a very negative effect on economic growth, and could either prevent that recovery or nip it in the bud. A number of things are more important that a budget deficit, and you've got to ask whether or not cutting the deficit in half in a four-year period -- which is going to be hard to do -- conflicts with the goal of coming out of the recession and staying out of the recession.... We are not out of the woods yet. We have to be very careful we don't kill this recovery we are trying to nurture along."
Geithner agreed in a general way that caution is required. "There is a question about what's a realistic path to sustainability. And we're going to be very careful."
Romer added that the administration is "monitoring the economy closely." Geithner concluded that the president's deficit-reduction goal "is a proposal from the president that is a plausible path judging from what we see today."
Geithner then invited about a dozen other guests, who were sitting around the edge of the room, to weigh in. It was an ideologically diverse group: John Cavanagh of the Institute for Policy Studies spoke admiringly of the 91 percent top tax rate of the 1950s and informed Geithner that "there are a lot of wealthy people who are willing to pay more" in terms of taxes. Yale Law Prof. Michael Graetz, a big champion of the VAT tax, pushed that idea as a means to raising the additional revenue you need to fund government and health care reform while promoting economic growth. Graetz and a few others agreed with Rangel that it's a good idea to bring the corporate rate of 35 percent down in order to make the U.S. more competitive internationally.
Larry Mishel of the Economic Policy Institute agreed that a VAT "may be appropriate at some point." And Bill Gale of Brookings said a VAT tax or a carbon tax "seems to be where we're headed" unless we intend to slash federal spending. Gale also offered this plug for the summit: "To me, the overriding news of the day is we have a president who says there is a fiscal crisis and the buck stops here. I'm much more optimistic than I was six months or a year ago." That prompted White House economic adviser Jason Furman to turn to your pool and declare: "I hope you all got that."
Former IRS commissioner Fred Goldberg, now at Skadden Arps, added his voice to the VAT bandwagon, and cautioned that collecting on the tax gap is far tougher than it might appear. Goldberg also offered a plug for the summit, saying "A presidential intiitaitve to deal with fiscal issues is hugely important because the capital markets will slaughter us if we don't come to terms with this."
Other attendees included Maya MacGuineas from the Committee for a Responsible Federal Budget, a guy named Joe from the Committee for Economic Development (your pool could not read his nametag from across the room,) a lady from La Raza (ditto) and another lady who talked about pro-growth tax policies whose name appeared to be Sarah Warnell. But I wouldn't swear to it.
Romer closed. "We obviously knew this was not going to solve th eproblem. This is the start of solving the problem.... The main thing we want to say was the lines are open.... The president has made it clear this is a very high priority. And it will be worked on very hard over the next six months."
Posted at 6:26 PM ET on Feb 23, 2009
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