Special interests defend breaks in report on U.S. tax overhaul

WASHINGTON Mon May 6, 2013 5:34pm EDT

WASHINGTON May 6 (Reuters) - "Tax the other guy, not me!" was the main message from a variety of special interest groups commenting on tax breaks in a report issued on Monday, underscoring the problems faced by the U.S. Congress as it considers a revamp of the tax code.

Republican Dave Camp, chairman of the powerful tax-writing Ways and Means panel in the U.S. House of Representatives, commissioned the report.

It describes the current tax laws and summarizes comments from hundreds of interest groups, from corporations and private equity managers to banks and non-profit groups.

Prepared by the non-partisan Joint Committee on Taxation, the report highlights how difficult it will be to manage a top-to-bottom tax code rewrite, which has not been done since 1986.

Despite wide agreement on the need for an overhaul of the tax code, most of the comments ultimately expressed support for preserving one or more existing special interest tax breaks.

For example, the section on carried interest - a tax break that private equity partners and other financiers get on a portion of their income - lists several suggestions. All of them call for preserving the current tax treatment in various ways.

One supporter of the Cayman Islands, home to many offshore business ventures, commented on page 523: "Do not associate the Cayman Islands with tax evasion."

The American Council of Gift Annuities called for making permanent and expanding certain favorable tax treatments for rolling over IRA pension accounts into charities, instead of letting the treatments expire as scheduled this year.

Camp in late March appointed members of the House Ways and Means Committee to 11 "working groups" to tackle tough topics ranging from real estate taxation to charitable giving and to report their findings to the joint committee.

The Michigan Republican has pledged to move legislation out of his committee to the full House this year. His Senate counterpart, Democrat Max Baucus, chairman of the Senate Finance Committee, wants to do the same.

But the joint committee's findings underscore the difficulty of doing this, with nearly all budget and tax experts saying that some tax breaks will have to be nixed if lawmakers want to lower tax rates without adding to the federal budget deficit.

In other examples of interest group comments:

- Some comments called for protecting the tax break on municipal bond interest, and sought to expand the break to a wider universe of projects. They wanted to increase flexibility in using such debt for energy utilities, remove some issuance limits, allow tribes to sell more bonds and boost financial institutions' bond purchases.

- The American Hospital Associations urged preserving tax-exempt bond issuance for non-profit hospitals.

- The Association of Art Museum Directors called for increasing the tax deduction available on gifts of art.

- Bayer Science wrote to say it wants an expanded research and development tax credit.

- The U.S. Chamber of Commerce called on Congress to keep cost recovery tax breaks for businesses.

A small slice of the report highlighted the need for sacrifice.

Comments submitted to the working group on income and tax distribution backed imposing a limit on itemized deductions and exemptions such as that proposed by President Barack Obama.

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Comments (1)
Complex tax rewrites or new proposals like the Fair Tax may be noble ventures. However given the current dysfunctional nature of the US legislative process, it is very unlikely to pass. That means that taxpayers will have to deal with the world as it is, not how they wish it would be.

Doing nothing is making a decision to do something…ie maintaining the status quo. This can be dangerous because the natural outcome of a progressive tax system model for individual taxation is an extreme over reliance on a small number of taxpayers for an enormous percentage of total tax collected. Whether you think it fair or not, the top 1% (aka Golden Geese) account for just over one third of the total taxes collected.

Whether you, I, or Warren Buffet think the current is fair is irrelevant. It is whether a given individual Golden Goose believes the current system is fair. If they do not then they are faced with Hirschman’s choices of Exit, Voice, or Loyalty. Increasingly, my Golden Geese clients are saying that throwing money at lobbyists or politicians with the hope of correcting the situation is useless. Likewise, there is decreased satisfaction with the efficient and effective use of tax monies by the US government in solving societal ills or providing services. This results in reduced loyalty to the existing system of unlimited liability for taxes paid to the US government. This decreased loyalty is exasperated by globalization providing many favorable alternative jurisdictions where a Golden Goose can limit their tax liability while maintaining their personal and business lifestyle. Canada and the UK are but two of many possibilities.

The obvious result is a gigantic increase in EXIT. You already see evidence of this with record numbers of US expatriations. Look for this number to skyrocket in coming years. As a result of the system having such a dangerous overrelieance on the Golden Geese, you only need a tiny number of them to leave to have a HUGE negative effective on tax revenue. Maybe that is why everyone freaks out when Eduardo Saverin leaves or John Paulson is reported to be considering leaving?

May 07, 2013 6:06am EDT  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.