On June 27, Senate Finance Committee Chairman Max Baucus (D-MT) and Ranking Member Orrin Hatch (R-UT) announced they are taking a new "blank slate" approach to tax reform discussions.
In a letter to their Senate colleagues, Baucus and Hatch stated, "We believe it is important to start with a 'blank slate'—that is, a tax code without all of the special provisions in the form of exclusions, deductions and credits and other preferences that some refer to as 'tax expenditures.'" They have asked their fellow Senators to formally submit legislative language or detailed proposals for tax expenditures to be included, added, or repealed in a reformed tax code.
The so-called Simpson Bowles bipartisan deficit reduction plan used a similar approach. By eliminating every tax break in the code, legislators argued, they could reduce the top tax rate to 23 percent for individuals and generate the dollars needed to reduce the deficit; thus, any breaks the tax code reinstated would need to be offset by an increase in tax rates.
This approach would make popular exclusions, deductions, and credits vulnerable—from the mortgage interest deduction to the exclusions for employer-provided health insurance and contributions to retirement savings. Students and institutions would be impacted by the elimination of the charitable deduction and the incentives that help students and families pay for college, such as the American Opportunity tax credit, Hope tax credit, Lifetime Learning credit, the tuition deduction, Coverdell Education Savings Accounts, Section 529 College Savings Plans, Section 127, and the Student Loan Interest Deduction.
While Senate Finance Chairman Baucus and House Ways and Means Committee Chairman Dave Camp (R-MI) have been steadily committed to comprehensive tax reform, congressional leaders and the White House seem only lukewarm to the idea. Democrats and Republicans do not agree on whether the reform process would be revenue neutral or aimed at generating additional revenue for the government.
On July 10, Baucus and Hatch once again issued a joined statement in response to such questions. The non-committal statement read, "The issue of raising revenue through tax reform is clearly a subject of great debate amongst both parties...However, the main question is not whether tax reform raises revenue. It's what is done with the revenue raised through closing loopholes, simplifying the code and making other adjustments...[Senators Baucus and Hatch] are committed to overhauling the tax code to benefit America's families and businesses. And they are committed to doing so by working together in a bipartisan manner."