July 08, 2013
Chairmen Max Baucus, Dave Camp hit the road to sell tax reform
ST. PAUL, Minn. — It’s a favorite strategy for presidents who see their policy priorities struggle on Capitol Hill: Take the conversation outside the Beltway to rally the public’s support.
Lawmakers often dismiss such tactics as theatrics but on Monday, two of the most powerful members of Congress ripped a page from that playbook to promote tax reform.
House Ways and Means Committee Chairman Dave Camp (R-Mich.) and Senate Finance Committee Chairman Max Baucus (D-Mont.) kicked off a summerlong “road show” with a pair of campaign-style stops here. They played with new technology from manufacturing giant 3M and ditched their suit coats for hard hats to tour the new facilities of a family-owned bakery.
They cracked jokes, listened to workers and, at one point, even held hands.
“There is a bit of a bubble in Washington. It’s true,” Baucus told an auditorium filled with about 100 employees at the 3M innovation center. “We are trying to break it.”
It’s not clear that such events will move the dial on tax reform. There was no talk about how they expect to move a complex overhaul package when the congressional calendar is currently dominated by immigration reform and will soon become consumed by efforts to raise the debt ceiling.
But like presidents who flee Washington for friendlier locales, Camp and Baucus found themselves speaking before largely supportive crowds who share their sense of urgency.
“Canada, with its 25 percent tax rate, is actually hurting us,” one 3M employee said during a question-and-answer session. “We are losing business that 3M should have here because a Canadian competitor can make it and ship it into the U.S. for cheaper than we can make it and sell it due to the tax rates.”
Still, the lawmakers weren’t able to entirely shake the political realities more than 1,000 miles away in Washington. Baucus, for instance, cast doubt on whether Congress would be able to slash the corporate tax rate from 35 percent to 25 percent — the level sought by House Republicans.
“To be honest, I think 25 percent is a bit of a stretch,” Baucus said.
The decision to stop at 3M wasn’t a coincidence.
The firm is one of the few corporations to explicitly say they’ll put all of their corporate tax breaks on the chopping block in exchange for a dramatically lower rate — music to the ears of tax writers who constantly hear companies beg for lower tax rates while employing teams of lobbyists to protect special breaks.
Standing inside 3M’s expo-style technology facility, Camp and Baucus said they were committed to getting a tax overhaul across the finish line.
“To make this happen, Dave and I believe it must be bipartisan; we must work together,” Baucus said. “I think we have a very good chance of success. It is like anything else in life — you make your own destiny.”
Most of the questions that Baucus and Camp heard were pre-selected. At one point, Baucus asked the crowd for a non-scripted question. One employee took the opportunity to ask a question on many minds in Washington: What guarantee do you have that tax reform will actually happen?
“At the end, it is going to have to be a bipartisan bill,” Camp said. “In the middle, it always looks like failure. The object is to get past that.”
It is the process of getting there that has business owners, lobbyists and lawmakers alike on edge.
Though enactment of a tax reform package is a long way off, activity is picking up. Baucus and Utah Sen. Orrin Hatch, the top Republican on the Finance Committee, recently told their colleagues that they were moving forward on reform with a “blank slate,” giving the other 98 senators until July 26 to defend current tax provisions that should be retained. Camp, meanwhile, broke his committee members up into working groups this year and that process ultimately yielded a nearly 570-page report that included suggestions for an overhaul.
But the chairmen are split along party lines over whether or not reform should raise revenue. Camp has said he will advance legislation by the end of this year that doesn’t include new revenue while Baucus is moving forward with a plan to craft a revenue-raising tax code that is at least as progressive as the one currently on the books.
The prospect of a simpler code is appealing for big international players like 3M, but the tradeoffs aren’t so easy for smaller companies like Baldinger Bakery, which Camp and Baucus visited later in the day.
The family-run bakery recently built a brand new $30 million facility on the outskirts of St. Paul with the help of $4 million in funds from the New Markets Tax Credit — a benefit that could be threatened by tax reform.
Baucus and Camp surveyed the sprawling new factory as it churned out plain hamburger buns for McDonald’s, one of its biggest clients. Conveyor belts ferried thousands of trays of identical buns from gooey dough to perfectly browned mounds while employees buzzed around the facility.
The factory was built on a former brownfield in the shadow of the city’s declining manufacturing facilities. The area saw unemployment nearly double as companies abandoned their facilities for cheaper locations, according to Steve Baldinger, the company’s current CEO. That’s what made it prime for the New Markets credit.
The incentive pairs private investors with individual companies to bring new business to areas with struggling economies. For Baldinger Bakery, that meant a $19 million total allocation for the project, $4 million of which went directly to the bakery, Baldinger said.
Baldinger said he’d give up breaks and opt for a simpler code, but it may not be that easy. Baldinger Bakery is organized as a partnership, which means that profits from the business are reported on individual returns — a complicated process.
“It is about what grows the business,” Baldinger said. “We like to focus our energy on growing our business, not looking for a way to maximize our return in another way.”
A lower corporate rate wouldn’t necessarily guarantee a big payoff for small businesses like Baldinger, which usually don’t enjoy as many benefits under current law as larger firms. Baucus and Camp are still wrestling with how to address small-business taxation.
Still, lobbyists in Washington couldn’t be happier with the chance to put tax reform issues on the front burner.
“The New Markets Tax Credit has proven to be an effective incentive that has moved investment capital from the sidelines into some of the most economically distressed rural and urban communities in America,” Bob Rapoza, the spokesman for the New Markets Tax Credit Coalition, said in a statement.
Baucus and Camp will be back at it tomorrow — discussing tax reform with Democrats and Republicans from the House and Senate over burgers and beers at the Irish Times pub on Capitol Hill. And the plan is for the duo to take their show on the road again later in the summer.
As Camp said while touring the bakery: “The aroma of tax reform is in the air.”
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