February 12,2015

Wyden Remarks on Tax Reform at the Tax Council Policy Institute

As Prepared for Delivery

Earlier this week, the Senate Finance Committee held a hearing looking back at the Tax Reform Act of 1986. Senator Bill Bradley, who was at the center of that reform effort, was kind enough to be one of the witnesses. And the hearing raised in my mind a discussion that Senator Bradley and I have had several times over the years. It’s that comprehensive tax reform is completely, entirely, hopelessly impossible -- right up until the moment it happens.    

Those of us who work on tax policy hear over and over that tax reform can’t happen. That today’s social media stampede will trample down any effort. That Congress can’t organize a two-car parade. But I don’t buy the skepticism.

America’s tax code is an economic straitjacket. It’s a burden that businesses and families shouldn’t have to fight. I don’t need to tell this crowd that it’s past time for a comprehensive tax overhaul.

What’s needed is a modern tax code that will help boost the nation’s economy, make the U.S. more competitive in the global marketplace, spark innovation, and create jobs. It should be simpler and much more efficient, giving everyone a chance to get ahead – including middle-class families and businesses in Oregon and across the country.

Chairman Hatch and I agree that it’s past time for comprehensive reform. The process won’t be easy and the choices are hard, but there is a strong appetite for it to work. One of the biggest hurdles to reform is getting members invested and up to speed on the policy. But I am confident that my colleagues on the Finance Committee are up to the task. We aren’t starting from scratch. A lot of ink has already been spilled.

It’s likely that the perfect plan – or the final plan – hasn’t been constructed yet. But the building blocks of reform are there. And everyone understands that the status quo is unsustainable and unacceptable. The straitjacket gets tighter and tighter, and the alarming examples of how it affects our economy keep coming.

Everybody saw inversions drive the tax reform debate forward last year, creating a greater sense of urgency with each new headline. And while inversions have slowed, I don’t think we have seen the last of them. Companies are watching very closely what the administration and Congress will do. But the underlying issue remains the same. The tax code distorts the market and often drives the decisions businesses take. Instead of focusing on growth and hiring, businesses have to spend too much time and too many resources on taxes -- both at home and abroad. That shouldn’t be the case.

Stop-and-go tax extender policies are another example of our broken tax code. The Congress passed a bill extending those tax incentives in December. But guess what, it expired again on January 1st.  I said at the time that the bill had a shelf life shorter than a carton of eggs. And now taxpayers are back in the dark, forced to guess if and when Congress will act. And any time Congress spends on extenders is time it’s not spending on comprehensive reform.

But that doesn’t mean tax reform is impossible. The Finance Committee continues to be the go-to place for tackling America’s big domestic challenges.

Its long history of bipartisanship and teamwork is prevalent today. And that legacy of bipartisanship is an essential foundation as it takes on big economic issues.

I continue to believe that there is a window of opportunity in front of us for reform. I’m hopeful that the new bipartisan tax working groups Chairman Hatch and I announced last month will aid in that effort. These five groups focused on key aspects of the code – individual; business; savings and investment; international; and community development and infrastructure. And the members of those groups are already getting down to work.

Two weeks ago, the Finance Committee Democrats and I sent a letter to Chairman Hatch outlining our principles for tax reform that would help our economy grow and strengthen the middle class. Some people have suggested that our letter signals a strong resistance to tax reform, but I couldn’t disagree more. Having written the only actual bipartisan federal income tax reform bills in the last quarter century, I’ve got plenty of sweat equity invested in advancing reform. I can tell you that senators on both sides of the Finance Committee understand the need to fix our broken tax code and want to pitch in.

To be successful in this effort, everybody needs to establish clear goals, outline their principles, and come to the table willing to find common ground. That’s what our letter does. So I wanted to run you through some of our principles today.

First, Congress must continue to focus on domestic growth and job creation. Tax reform should take the straitjacket off our economy. It’s time to stop it from distorting business decisions and picking winners and losers. The tax code should spark investment, help big-thinking startups grow, and drive job creation. I believe our economic recovery will go from a walk to a sprint when middle class families are seeing bigger paychecks. And one of the best ways to make happen is to create more jobs and get more workers climbing the career ladder.

Second, our corporate tax system needs to be much more internationally competitive. That means lowering rates and helping American companies compete on a level playing field with the rest of the world. I was gratified earlier this month to see the President’s budget proposal would move toward ending the system of deferral that traps the profits of American businesses overseas instead of re-investing them here in the U.S.

While there may not yet be agreement on the particulars of any international reform proposal, there’s momentum behind ending that lock-out effect in Congress and, I believe, a path to getting there.

Reform must also make the code more progressive than current policy. This principle was shared by President Reagan when he praised the 1986 Tax Reform Act as, “a sweeping victory for fairness,” and, “perhaps the biggest anti-poverty program in our history.”

Third, tax reform must be fiscally prudent. At a minimum, our efforts should create a sustainable revenue base to meet our country’s needs over the long term. In my view, pro-growth tax reform can help raise revenue, and it’s crucial to have faith in the nonpartisan scorekeepers at the Joint Committee on Taxation and the Congressional Budget Office. There has also been a lot of discussion of a process called “dynamic scoring.” To most people, dynamic scoring might sound like the game plan that’s gotten the Portland Trailblazers to the top of the NBA standings. But there’s something else at play when it comes up in the context of tax reform. Congress cannot gamble with the nation’s financial health by looking to budget gimmicks, timing shifts, or questionable, unproven math.

Policymakers will need to put the JCT and Treasury to good use in any reform effort. It’s important to avoid picking winners and loser by clearly understanding how decisions would affect different industries and regions across the country.

Finally, it’s crucial that the tax reform process goes through regular order and not through budget reconciliation. If the goal is bipartisan policies, the process can’t start with partisanship. And reconciliation is the partisan route. Tax reform has to yield sustainable policies that will stand the test of time. Undertaking tax reform through what has become an almost inherently partisan process jeopardizes its durability.

The Finance Committee heard this first hand in our hearing earlier this week. As you’ll recall, the Tax Reform Act of 1986 was passed under regular order at a time when it was very common for Congress to use reconciliation.  In 1986, using a bipartisan process, the Finance Committee’s bill passed the Senate on a vote of 97 to three. Let me say that again -- 97 to three. The ultimate conference report achieved more than two-thirds votes in both chambers of Congress.  It’s important to work hard to build that kind of consensus again.

There’s a lot of work ahead. And as I said before, people will argue that comprehensive tax reform is completely, entirely, hopelessly impossible -- right up until the moment it happens. In getting to that point, there’s a lesson for Congress to learn from 1986. Congress and President Reagan came together that year to pass reform based on what I call principled bipartisanship. One side wanted to lower rates and flatten the tax structure. The other side wanted to close loopholes and guarantee the tax code treated everyone fairly. So they set aside the partisan attacks, they met in the middle, and each side came away with the feeling that it had upheld its principles.

Reforming the tax code is always a herculean task, but the same strategy of principled bipartisanship can work again today. Everyone understands what needs to be done and how much work is involved. The bottom line is that it’s past time for tax reform. The economic straitjacket has to go.

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