Special interests defend breaks in report on tax overhaul

WASHINGTON (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.

House Ways and Means Committee Chair Dave Camp (R-MI) questions U.S. Secretary of the Treasury Timothy Geithner in Washington February 15, 2012. REUTERS/ Gary Cameron

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.

Additional reporting by Nanette Byrnes, Patrick Temple-West and Lisa Lambert; Editing by Kevin Drawbaugh and Eric Walsh