Key Democratic senator tries to jumpstart effort to rewrite tax laws amid partisan bickering

WASHINGTON – The top Democratic tax writer in the Congress is trying to jumpstart stalled efforts to rewrite the nation’s tax laws. But he is running into the same kind of partisan roadblocks that plague most major initiatives in Washington.

Sen. Max Baucus of Montana unveiled a draft proposal Tuesday to allow corporations to bring foreign profits into the U.S. at reduced tax rates. It would be part of a larger plan to change the way the U.S. taxes multinational corporations.

Corporate America has been clamouring for changes, and the idea of simplifying the tax code for both businesses and individuals has broad support from Republicans and Democrats in Congress.

Tuesday’s announcement was supposed to be a bipartisan affair, but Republican senators backed away from the effort, fearing it would become a vehicle for a tax increase.

“Unfortunately, the bipartisan desire to overhaul our tax code has become mired in the partisan desire by some to raise taxes under the guise of so-called tax reform,” said Sen. Orrin Hatch of Utah, the top Republican on the Senate Finance Committee, which Baucus chairs.

Hatch and other Senate Republicans want Baucus to hold off on a tax overhaul until after Congress reaches a budget deal for next year. Republican senators fear that any ideas they come up with to reduce or eliminate tax breaks will be co-opted by Democrats as a way to raise additional tax revenue.

It is a central issue that has divided Democrats and Republicans for years. Both parties say they favour simplifying the tax code. But many Democrats, including President Barack Obama, want to use tax reform to raise more revenue, while most Republicans are dead set against raising taxes.

Baucus has spent several years working with Republican lawmakers — including Hatch — in an effort to bridge the divide. Tuesday’s offering from Baucus was on international taxation. Later this week, Baucus is expected to release proposals on changing rules for tax accounting. Proposals for taxes on individuals are expected in the coming months.

“It’s time to move; it’s time to go,” Baucus said Tuesday.

The Montana Democrat labeled the proposals “staff discussion drafts,” saying they were open to change after he gets reaction from corporations, advocates and other lawmakers.

“The door’s wide open to keep working with” Hatch and other Republicans, Baucus said. “And I think there is a very good chance he’ll be with us here tomorrow. I’m just not sure when tomorrow is.”

Baucus has also been working with Rep. Dave Camp, R-Mich., chairman of the House Ways and Means Committee. Camp has been saying for months that his committee would pass a tax overhaul bill by the end of the year. Last week, however, he said the timing could slip into 2014.

Timing is important because 2014 is a congressional election year and partisan politics can make it even more difficult to pass major legislation.

Baucus said his plan for international taxes was designed to make U.S. corporations more competitive while making it harder for them from to use tax havens to avoid U.S. taxes. The plan also was designed to encourage U.S. corporations to bring home an estimated $2 trillion in profits that they have parked overseas.

Unlike other countries, the U.S. taxes corporate profits even if they are earned abroad. American corporations, however, don’t have to pay U.S. taxes on foreign earnings until they bring them back to the U.S.

Taxe experts say the system encourages corporations to keep profits overseas, reinvesting them abroad or simply banking them so they can avoid the 35 per cent tax on corporate profits.

Baucus’ plan would impose a one-time 20 per cent tax on foreign profits that already have been realized. The tax would be payable over eight years, whether corporations bring it home or leave it abroad.

In the long-term, Baucus’ plan for international taxes is designed to raise about the same amount of money as the current system. However, there would be a windfall up front.

Baucus’ staff estimates the one-time tax would raise more than $200 billion, after foreign tax credits are deducted.

The proposal is similar to one made by Obama over the summer. At the time, the president said he wanted to use the one-time cash on job creation, including spending on infrastructure.

On Tuesday, Treasury Secretary Jacob Lew called Baucus’ proposal “a very constructive step.”

The plan, however, was criticized by both a business group and a consumer group.

The Business Roundtable, which represents top executives, said the proposal would make U.S. corporations less competitive. The consumer group, U.S. PIRG, said the plan doesn’t do enough to stop tax haven abuse.


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