Lew vows to push on with tax overhaul
15 April 2013
Posted by: Author: James Politi and Stephanie Kirchgaessner
Source: James Politi and Stephanie Kirchgaessner
US Treasury secretary Jack Lew pledged to work with Congress on a sweeping overhaul of the tax code this year, adding momentum to one of the most ambitious but difficult legislative efforts on Capitol Hill.
A day after the release of Barack Obama’s annual budget, Mr Lew told members of the tax-writing House ways and means committee that the administration was prepared to clinch a tax deal for both companies and households in 2013 – a swift timeframe given the divisions in Washington on fiscal policy.
"We are very much supportive of both individual and business tax reform. We think they need to move together and we’d like to work with you to do that this year,” Mr Lew said.
In its budget, the White House for the first time explicitly said that the elimination of corporate tax breaks – for oil and gas groups, for instance – should be used to reduce America’s 35 per cent corporate tax rate, rather than count that money towards deficit reduction.
This "revenue-neutral” framework on the corporate side was applauded by Republicans and some business groups, who called it a step forward. "Directionally it’s the right thing,” said John Engler, president of the Business Roundtable, which represents America’s top 200 blue-chip companies and is campaigning for corporate tax reform. "It leaves plenty of room for [Congress] to continue its work,” he said.
In his budget the US president also embraced a proposal by Dave Camp, the Republican chairman of the ways and means committee, to raise taxes on derivatives, which has ruffled feathers on Wall Street. Mr Camp told Mr Lew at the hearing that he was "pleased” to see "the administration taking more concrete steps towards tax reform in this budget”.
Mr Camp has stepped up his work on tax reform over the past months, as has Max Baucus, the Democratic chairman of the Senate finance committee, raising hopes that the US could be within striking distance of the biggest revamp of the tax code since 1986 under Ronald Reagan.
But a huge obstacle remains. Mr Camp and Republicans want tax reform to be "revenue neutral” for individuals as well, whereas most Democrats as well as the White House want wealthy Americans to use some of that money – at least $580bn over 10 years – for deficit reduction.
"In the context of our overall fiscal plan we have a disagreement over whether or not we need to raise revenue. That’s a legitimate disagreement,” said Mr Lew. "We’re going to have to work our way through that.”
The cautious progress on tax reform came as Republican leaders offered mild praise for Mr Obama’s decision to include cuts to the Social Security pension programme in his budget by applying a less generous measure of inflation to cost-of-living adjustments. However, other Republicans attacked Mr Obama for hurting seniors.
Meanwhile, Mr Obama’s inflation proposal provoked a fierce backlash from liberal members of his Democratic party, who feel betrayed by the president.
The White House on Thursday defended his budget proposal, which it said represented a compromise that did not reflect Mr Obama’s "wishlist”. The inclusion of entitlement reform – chained CPI and the means testing of Medicare – was "at the specific behest and request of Republican leaders”, said Jay Carney, the White House press secretary.
Mr Carney said Republicans had repeatedly said those proposals would have to be part of a broader budget deal, and that "cynical attempts” by some Republicans to criticise the proposal as harmful to the elderly was "flagrantly ridiculous” because they had emanated from Republicans.
"In order to achieve [a budget] deal, he recognises he will have to make some tough choices and that Democrats will have to accept things that they would not otherwise want to do. But so too will Republicans,” said Mr Carney.
The president appears determined to try at least to forge some consensus with the opposite party on a big fiscal agreement that would include tax reform.
On Wednesday night he dined with a group of Senate Republicans at the White House, where they not only discussed fiscal policy, but also legislation on gun control and immigration that is moving through Congress in the next few weeks.
In an optimistic scenario, Mr Obama’s olive branch in the budget could help create more trust on Capitol Hill to pass these measures, which in turn could foster better political conditions for a fiscal deal over the summer.
"This is the first time in this presidency that I have seen a chance at a bipartisan budget agreement, so I am cautiously optimistic about that,” Paul Ryan, the former Republican vice-presidential nominee, and chairman of the House budget committee, told NPR Radio on Thursday.