Most of Washington, D.C., has given up on the possibility for comprehensive tax reform this year, but don’t tell that to Dave Camp.
The Michigan Republican, who chairs the House Ways and Means Committee, is preparing to release a draft proposal to overhaul the tax code for the first time since 1986. In a letter to committee members last week, Camp promised a “comprehensive discussion draft” outlining his suggested reforms.
“We can choose to have a real discussion about what tax reform can mean for American families and employers or we can choose to cower to special interests and maintain the status quo,” he wrote in the email, which was obtained by E&E Daily.
Details of the draft are being closely held, but several lobbyists close to the oil and natural gas industry last week echoed earlier expectations that Camp would ax several of the most lucrative breaks those companies enjoy. A committee spokeswoman declined to comment.
Sources said the draft was expected to mirror language from former Senate Finance Chairman Max Baucus (D-Mont.) targeting various “cost recovery” provisions, such as the intangible drilling costs and percentage depletion deductions for the oil and gas sector as well as the use of “last-in, first-out” accounting rules that can lower the taxable value of existing inventory for a variety of businesses (E&E Daily, Nov. 22, 2013).
The draft also is expected to eliminate the so-called Section 199 manufacturing incentive, which allows U.S. manufacturing companies – including oil and gas drillers and refiners – to reduce their tax rates.
It is less clear how Camp will treat other sectors, such as renewable energy or biofuels, that rely on temporary provisions collectively known as “tax extenders,” but he is not expected to follow Baucus’ lead in establishing a pair of credits to support “clean” electricity and fuel production.
The bill is likely to encounter resistance from the business community and its allies on Capitol Hill, raising questions over how far it gets this year. But there is a sense that Camp and his staff want something to show for all the work they have put into the bill thus far.
Meanwhile, Sen. Ron Wyden (D-Ore.) this week begins his tenure as chairman of the Senate Finance Committee, following Baucus’ departure to become ambassador to China.
While he is a long-standing proponent of comprehensive tax reform, Wyden has said repeatedly that his more immediate priority this year is extending dozens of business tax breaks that expired at the end of last year, such as the renewable energy production tax credit, or PTC, and various incentives to promote biofuels and energy efficiency.
“I just don’t want to see important matters like research and development and renewable energy sacrificed on the altar of inaction on comprehensive reform,” Wyden told reporters before last week’s congressional recess.
Wyden is still organizing the committee’s agenda, and nothing has been formally scheduled. He did make at least one key hire, according to the congressional staff database maintained at Legistorm.com. The Finance Committee this month hired as its chief counsel Michael Evans, who has a background in energy and environmental policy.
Evans previously worked for the Democratic staff of the Environment and Public Works Committee and as an aide to Baucus. According to his biography for the K&L Gates law firm, where he was employed before returning to Congress, “He has worked on virtually every major piece of tax and environmental legislation for the past thirty years.”
Camp and other Ways and Means members have been just as adamant that their focus remain solely on comprehensive tax reform, raising questions over whether any legislation would be able to make it through both chambers this year.
The looming midterm elections further complicate matters for either comprehensive tax reform or an extenders package.
To achieve the reductions in individual and corporate tax rates that Camp has said he wants to achieve, a comprehensive tax reform bill almost certainly would have to cut into tax breaks that are popular among voters – such as the state and local tax deduction – or powerful special interests, such as oil companies’ ability to deduct intangible drilling costs or various industries’ use of “last in, first out” accounting practices.
Political considerations also could complicate the push for a tax extenders package. Such legislation typically carries a hefty price tag that rankles budget-conscious members, and some of the specific provisions – in particular the PTC – are facing increasingly intense opposition from outside conservative groups aligned with fossil fuel interests.
Congress most recently passed an extenders bill in the lame-duck session following the 2012 election. However, at that time it was able to hitch a ride on the larger “fiscal cliff” legislation to prevent an across-the-board increase in individuals’ taxes. The lack of a similarly significant “must-pass” bill this time around further complicates the prospect for extenders, but many of the breaks enjoy broad backing from lawmakers, and advocates say they are staying optimistic.
Whatever happens this year will not close the book on tax reform, and several players in the debate already are looking ahead to next year, when Wyden – assuming Democrats keep their Senate majority – could have the opportunity to team up with Rep. Paul Ryan (R-Wis.), who is expected to succeed the term-limited Camp as Ways and Means chairman.
The two have worked together in the past on a Medicare reform proposal, and both are seen as policy wonks unafraid to buck their parties. A potential Wyden-Ryan partnership on tax reform could create even larger headaches for the oil industry and an array of other interest groups seeking to protect their favored incentives.
One lobbyist summed up Ryan’s approach as: “I’m an intellectual conservative, and K Street just needs to suck it up.”
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