Senate Democrats Lay Out Tax Reform Principles

Democrats on the Senate Finance Committee have sent a letter to the Republican chairman, Orrin Hatch, R-Utah, outlining their main principles for tax reform.

The letter, sent Thursday, emphasizes first that the tax reform process should go through “regular order” and not the budget reconciliation process.

“Reconciliation imposes tight restrictions, such as the Byrd rule, that could inhibit our work by forcing us to focus on procedural intricacies rather than good tax policy,” said the Senate Democrats in their letter. “Using, or even the implicit threat of using, the reconciliation process for tax reform would destroy the necessary bipartisanship that made the 1986 reform effort so successful.”

Other principles cited by Senate Democrats include making reforms more progressive than current tax policy, and reducing the differential between taxes on capital gains and wage income.

Democrats on the committee also called for more certainty for businesses and middle-class families by permanently extending and improving some tax credits, particularly in the areas of education, training and retirement savings.

“When applying this principle, any reform package must take into account the varying cost of living differences among states and regions, and ensure that all middle class families are protected regardless of where they live,” the senators added.

They also emphasized the need for any tax reforms to support domestic jobs, production and manufacturing, presumably aimed at ending tax breaks that encourage companies to move jobs offshore.

In addition, they said any tax reforms would need to provide enough of a revenue base to meet the country’s needs for investing in infrastructure, protecting retirement security for today’s senior citizens and future generations, and providing education and job training for young people.

Senate Democrats also stressed the need for exercising fiscal prudence. “We should not gamble with our fiscal health by relying on unproven revenue-estimating methods and budget gimmicks, such as one-time revenue or timing shifts,” they wrote. “Accordingly, we believe that comprehensive tax reform should raise real and permanent revenue over the next 10 years and beyond to help reduce our national debt.”

They also called for securing the help of the Joint Committee on Taxation to determine how any tax reform proposal would affect different industries and geographic regions.

The final principle emphasized the need to ensure that the corporate tax system is internationally competitive.

“There can be little debate that the current rules for taxing income abroad represent a competitive challenge to U.S. firms, and significant improvements can be made to put our companies on a level playing field in the global marketplace, including reducing our statutory corporate rate while ensuring that all corporations pay their fair share,” they wrote. “However, the goal of any tax reform effort must be more jobs and growth here in the U.S., not more opportunities for tax planning and offshoring either of jobs or investment.”

Senate Finance Committee ranking member Ron Wyden, D-Ore., who chaired the committee last year, explained the need for the principles cited by Democrats on the committee.

“These seven core principles highlight beliefs that must contribute to any consensus tax reform product in order to grow the economy and support the middle class,” said Wyden in a statement. “As we move forward in pursuit of comprehensive tax reform, it’s critical that we establish clear goals, outline transparent principles, create a process framework and come to the table willing to find common ground.”

Last month, Hatch released his own set of principles for comprehensive tax reform.

“The most important principles are the three set out by President Reagan the last time Congress was able to pass a major tax overhaul, nearly three decades ago,” said Hatch in a speech on the Senate floor in December. “President Reagan’s first principle, and in my view, the most important, was economic growth. Tax reform should significantly reduce much of the economic distortions that are present under the current income tax system and promote growth in our economy. It should eliminate the anticompetitive nature of the current tax system, such as the high U.S. corporate tax rate, which stifles job growth.”

The other principles from Reagan cited by Hatch were fairness and simplicity. Hatch also added permanence, competiveness, promoting savings and investment, and revenue neutrality.