To get comprehensive tax reform, Sen. Wyden needs to abandon special interest tax extenders

Jim Huffman Dean Emeritus, Lewis & Clark Law School
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Oregon’s senior senator Ron Wyden has a well-earned reputation for collaborating on bipartisan proposals dealing with a variety of subjects from health care (with republican Congressman Paul Ryan) to tax reform. Although Wyden has had few successes in actually seeing those proposals through to legislation, that could change now that he has become the chairman of the Senate Finance Committee. (Full disclosure, I was Wyden’s Republican opponent in the 2010 election.)

Wyden has talked a good story on tax reform, reminding everyone that he would like to see the sort of fundamental transformation that occurred in 1986 when another Oregon senator, Republican Bob Packwood, chaired the Senate Finance Committee. Four years ago Wyden partnered with New Hampshire Republican Judd Gregg in proposing a Bipartisan Tax Fairness and Simplification Act. Two years ago Wyden hit the tax reform nail on the head when he penned a piece for Tax Watch titled “Bipartisan, Comprehensive Tax Reform Will Restore America’s Competitive Edge.”

In that Tax Watch commentary Wyden observed that “instead of investing in new jobs and innovation, U.S. businesses are investing time, energy and resources to avoid paying taxes.” “Instead of hiring people to build things,” wrote Wyden, “businesses are hiring lobbyists to secure more specialized tax breaks and loopholes to lower their tax burden.” This is good stuff. Maybe we finally have a senator in a position of influence who really does believe in the importance of comprehensive tax reform.

And there is another reason for optimism, at least according to the headline of a recent Daily Beast piece by Linda Killian declaring that “the senate’s new taxman won’t be controlled by his own party.” Comprehensive tax reform will surely have a better chance if the chairman of the senate finance committee is willing to buck those in his party who are more interested in continued manipulation of the tax code to assure their own reelection and a continuing Democrat majority in the senate. Of course he will have to deal with members of the other party who are equally concerned with reelection and partisan influence, but being willing to buck one’s own party is an important first step in getting agreement from the opposition.

Sadly, Wyden threw a lot of cold water on all of this optimism in a recent interview with Al Hunt on Bloomberg TV. Hunt asked Wyden whether comprehensive tax reform is realistic this year.  Wyden responded that because House Republicans have made it clear that Obamacare will remain their primary issue, tax reform will have to be a “two-step drill.”

Before turning to comprehensive reform, said Wyden, there are “about 50 of what are called tax extenders” that need to be re-enacted. What are tax extenders? They are renewals of special interest tax breaks, often called tax expenditures to avoid having them sound too much like crony capitalism and special interest politics.

But isn’t elimination of the log-rolling inherent in special interest tax breaks an essential aspect of comprehensive tax reform? How will extending 50 or so tax breaks provide what Wyden calls a “bridge” to comprehensive tax reform? And why would anyone believe that in a Congress of 535 members this bridge of so-called tax extenders will be limited to Wyden’s 50?

Wyden told Hunt that he is “not going to sacrifice important matters like research and development and innovation on the altar of perhaps some inaction on comprehensive reform.” But what member of congress does not have a list of favorite tax breaks they would like to extend, all of which are claimed to promote a public good that must not be sacrificed on the alter of comprehensive tax reform?

Wyden also told Hunt that the “tax code is a rotten, dysfunctional mess.” Exactly right. Unless he and his bipartisan tax reformers are willing to scrap that whole mess and start over with a code entirely devoid of special interest, tax expenditures, there will be no comprehensive reform. By opening the door to his own favored tax breaks, Wyden will assure that extension of existing tax breaks and the creation of new ones, not comprehensive reform, will be the finance committee’s agenda for the foreseeable future.

No doubt Senator Wyden and other members of Congress can make persuasive arguments for government support of particular private initiatives and enterprises, but if so they should put those arguments to the budget committee to compete with other demands for scarce federal dollars. Wyden’s tax extenders only perpetuate a pernicious system in which special interests profit from taxpayer support while appearing to not be feeding at the federal trough.

If Wyden really aspires to comprehensive tax reform, and I think he does, he must be willing to challenge the politics of special interests that have created the “rotten, dysfunctional mess” that is our federal tax code. The bridge to comprehensive tax reform must be the elimination of all special interest tax expenditures, not their extension.