If you want to see a good example of a dysfunctional Congress, look no further than the House and Senate debates last week over legislation to extend a variety of tax breaks that have already expired because Congress couldn’t agree on them last year. Like a Russian nesting doll, the legislative process played out as a layer of idiocy wrapped around a nugget of lunacy protecting a shell of timidity surrounding a vacuum of good ideas.
A Christmas Tree of Tax Breaks
It started in the Senate where Republicans joined Democrats in a 97-3 vote to bring to the floor a “tax extender” bill that everyone seemed to like. It was a Christmas tree full of tax breaks, $84 billion worth, with something for everyone. Republicans got an extension of the research & development tax credit for businesses; Democrats got $19 billion in energy credits President Obama wanted; and anyone else still on the fence got a hodgepodge of other tax breaks for race horse owners, Puerto Rican rum producers, Hollywood movie moguls, Nascar track owners, bicycle commuters, school teachers, regional railroads, coal mining companies with mines on Indian reservations, and, last but not least –– certainly, not least –– multinational corporations.
Everything looked pretty much easy breezy until Mitch McConnell, the Republican minority leader, decided he was shocked, shocked, that the Senate intended to pass the bill without giving him the opportunity to offer an amendment repealing an Obamacare tax on medical equipment.
The Citadel of Democracy
“This body exists to ensure that the citizens of this country have a say in what their government does,” he intoned. “It’s the citadel of our democracy––the place where we guarantee that no one in this country is cut out of the legislative process.”
To prevent the Senate from becoming a graveyard of “open democratic debate,” McConnell introduced a motion for a filibuster, and 40 Republican senators (all but Illinois Senator Mark Kirk) fell in lockstep to postpone a vote on a bill the vast majority of them favored.
“This useless, mind-boggling obstruction is what continually grinds the wheels of the Senate to a halt,” Majority leader Harry Reid said in response. “The self-proclaimed guardian of gridlock just gave his presentation – That’s what the Republican leader calls himself – and that’s what we’ve had here for five years.”
Never mind that the amendment was doomed to fail, or that the bill itself was not particularly forward thinking, it was another wasted day in chambers.
Honest, Yes. Passable, No.
Meanwhile over in the House, David Camp, the Republican from Michigan who chairs the House Ways and Means Committee, was taking up the same issue of extending tax breaks with a different tact. In all, there are 56 tax breaks that expire every two years unless Congress votes to “temporarily” renew them. In the Senate, they were voting to temporarily renew the R & D credit for the 15th time. But Camp decided it was time to call a spade a spade.
Stripping away the most frivolous ones, he introduced legislation to make the R & D credit and five other business-friendly breaks permanent. This, alas, means the cost of these must be accounted for over 10 years (like all budget items) and the price tag for these six measures alone suddenly shot up to $310 billion.
This pretty much blew a hole in all the Republican and Democratic budget projections, so President Obama announced he will veto the bill if it ever comes to his desk – which, of course, it won’t.
Uncollected Taxes are Expenditures
If all the breaks in the Senate bill were treated the same way, the cost would be an astounding $900 billion, This is roughly the same amount brought in by the expiration of the Bush tax cuts in 2011. And yet, Republicans who were willing to go to the ramparts over spending for food stamps, long-term unemployment insurance and other government “waste” – didn’t blink an eye at supporting business tax credits that cost ten times as much.
Maya McGuineas is the president of the Committee for a Responsible Budget, a bi-partisan watchdog group in Washington whose board of directors includes Erskine Bowles, Alan Simpson, Leon Panetta, Peter Peterson, Alice Rivlin, David Stockman, Laura Tyson and Paul Volcker––pretty much a who’s who of D.C. budget gurus.
McGuineas sees the extension of these temporary tax breaks every two years as a budgetary slight of hand that hides the need for comprehensive tax reform.
“They say there is nothing so permanent as a temporary government program, but apparently temporary tax breaks take a close second, especially when the costs of continuing them are made to appear to be free.”
The Shame in Congress
The shame in Congress is that none of the party leaders want to hold an honest debate over what these tax credits actually cost. It’s easier to use the debate over tax extensions as a platform for taking potshots at Obamacare. But the power to tax is one of the great levers of government, and the loopholes that allow special interests to evade their fair share rob the government of the money it needs to do its job effectively.
The last meaningful tax reform came in 1986. President Reagan and a Democrat-controlled House and Senate came to an agreement that closed $30 billion in loopholes, raised corporate taxes, and lowered individual tax rates. It was, as they say, revenue neutral – neither raising or lowering overall federal income – which many tax experts say was critical to its success.
Since 1986, however, the tax code has grown from 24,000 to 77,000 pages. The 1986 reform left 14 tax items that required bi-annual approval. That number has grown to 56 today. In the last decade alone, there have been more than 4,400 changes inserted into the code, an average of more than one a day, many written by industry lobbyists who have become so ubiquitous in Washington they constitute a fourth branch of the government.
There have been some valiant attempts to harness the budget beast. Max Baucus is a moderate Democrat from Montana who first came to the Senate in 1978. He served 12 years as chairman of the Senate Finance Committee and devoted his last two years in Congress trying to build consensus around comprehensive tax reform. Baucus and Camp, his Republican counterpart in the House, went around the country last summer and fall drumming up business support for a simplified tax code.
In exchange for lowering the corporate tax rate from 35 percent to somewhere short of 30, Baucus proposed taxing the foreign profits of U.S. Corporations and closing a variety of loopholes. His immediate target was an estimated $2 trillion in profits U.S. corporations have parked overseas, which Baucus proposed taxing at a lower 20 percent rate.
“I’m just trying to make something happen by taking the initiative,” he said. “You’ve got to start somewhere.”
When he released his draft proposal in November, it sparked a firestorm of opposition from Republicans and multinational corporations. His own party leader Harry Reid publicly scoffed at the idea of a tax reform that didn’t bring in at least a trillion more dollars to the treasury from corporations and wealthy individuals.
A month later, Baucus announced he was retiring from the Senate to become U.S. Ambassador to China.
Moving along a parallel track, Camp too tried to come up with a simplified tax code that addressed both corporate and individual income taxes. Closing loopholes was a central feature. Without a slew of tax preferences, he foresaw a corporate rate of 25 percent. If Congress would authorize a significantly higher personal deduction, he also believed that individuals could live without mortgage interest deductions and charitable contributions exemptions.
Camp brought 23 years of experience in the House to the task. He arrived there in 1991, the same year as John Boehner, and served as the ranking Republican on the Ways and Means Committee since 2003. When he unveiled his plan in March, it was met with a thundering silence, especially in his own party.
Paul Ryan, the chairman of the House Budget Committee, was given a copy to study before introducing the House Republican budget for 2014. Ryan’s proposed budget mentioned Camp’s work only in passing. It was, he said, one of “many good ideas.” Two others that got equal billing, from representatives with no tax writing experience, were the repeal of the 16th amendment and a plan to impose a national sales tax. Camp announced his retirement the same week.
An Unwelcome Topic
Talking about tax policy is one of those things that makes you unwelcome at dinner parties. But Washington dinner parties are safe. Baucus and Camp won’t be around, and the bench of other Congressmen willing or capable of taking on tax reform is bare.
Baucus and Camp are rare examples of Congressmen who have taken the time to study the levers of government to see how the machinery could be made more efficient. The rest of them are out on the campaign trail these days talking about waste, gridlock and whatever other popular catchphrase dings the bell in their internal polls.
And the party leaders, who ought to be concerned about how to make America work better, are so busy raising money to elect enough minions to support their leadership, they have no time for big ideas, or small ones, or that most illusive quality of all, leadership.
Congress is hopeless.