No tax reform plan yet: Obama aide

WASHINGTON Tue May 8, 2012 2:29pm EDT

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WASHINGTON (Reuters) - President Barack Obama's nominee to be the top tax official at the U.S. Treasury Department said on Tuesday that the administration is not actively working on a plan to revamp the tax code, frustrating some of Obama's fellow Democrats.

"We'd be negligent if we weren't doing foundational work ... But at this point there is no plan that has been developed," Mark Mazur, Obama's nominee for Treasury's top tax job, said at a Senate panel hearing on his confirmation. "We'll see how this plays out."

Both Republicans and Democrats, including Obama, call revamping the complicated tax code a top priority, but acknowledge this will not happen until after the November 6 elections.

Mazur, currently deputy assistant secretary for tax analysis, will lead Treasury tax policy if he is confirmed by the Democratic-led Senate. His nomination is being weighed by members of the Senate Finance Committee, which oversees tax policy.

The tax code has not been overhauled comprehensively since 1986 under President Ronald Reagan. In the ensuing years, the code has become weighed down with copious exemptions, deductions, credits and other provisions for special interests.

Ranging from middle-class sacred cows such as the deductions for mortgage interest and charitable giving to business tax breaks for private equity executives and corporate offshore profits, the U.S. tax code is riddled with loopholes.

With the federal deficit near $1.2 trillion a year, the tax code falls far short of generating adequate revenue for the government, but politicians are bitterly divided on the mix of spending cuts and tax increases needed to fix that problem.

Committee Chairman Max Baucus, a Democrat, asked Mazur whether Treasury is working on a plan to revamp the code, as it did under Reagan.

"We are in the early stages of developing public support," Mazur replied.

Democratic Senator Ron Wyden seemed irked. "Where is the sense of urgency?" he said, suggesting that Congress has already moved beyond "early stages" and citing many congressional hearings and a slew of reports from the past year or so.

But Mazur said tax reform was going to be a tougher slog than it was in 1986, when reform was "revenue neutral," neither raising nor lowering the overall federal tax take.

"We are going to need to modestly increase revenue, unlike in 1986," Mazur said.

Obama did put forth a blueprint to revamp corporate taxes earlier this year, bringing down the top 35 percent tax rate to 28 percent, with proposals to trim several tax breaks, Mazur noted.

"We have an opportunity to take some steps forward on business tax reform to look at the framework and find six or eight or 10 areas of common ground, use that as a way to move forward and build some momentum toward comprehensive reform," he said.

FISCAL CLIFF

Baucus asked whether Obama, if he were re-elected, would have a comprehensive tax overhaul plan.

Mazur said, "I can't promise that."

Baucus, who has been holding hearings on tax reform for more than a year, seemed to be taken aback by that answer.

"Unfortunately, unlike in 1986, the administration does not seem interested in leading the way and helping to forge a serious proposal for fundamental tax reform," said Senator Orrin Hatch, top Republican on the committee, at the hearing.

Most Republicans oppose any increase in taxes and many want to slash government social spending. Democrats tend to favor a mix of spending reductions and modest tax increases on the wealthy.

A confluence of fiscal deadlines comes at the end of this year, including expiration of lower income and investment tax rates enacted under President George W. Bush and renewed by Obama, along with across-the-board spending cuts if Congress fails to reach a plan to slash the deficit.

Some say these pressures could push lawmakers to at least start a process of tackling the tax code.

Republican Senator John Thune asked how Mazur would advise Treasury Secretary Timothy Geithner on these issues, which have been called a "fiscal cliff" or "taxmageddon."

Mazur targeted a set of expired individual and tax breaks known as "tax extenders" as the first item to be tackled.

"Right now we have a number of tax provisions that have expired in 2011 that really should be addressed in the short term so taxpayers have some certainty," Mazur said.

He also repeated Obama's view that the individual tax cuts enacted in 2001 should be extended for all except the wealthiest taxpayers.

(Editing by Gary Hill)

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