Welp, Here Are Three Big Deductions That Aren’t Getting Eliminated in Tax Reform

Now that our elected officials have finished not doing anything about the budget and debt ceiling, they have ample time to get back to not doing anything about other things. Like tax reform!

Senator Max Baucus is the chairman of the Finance Committee meaning he's responsible for getting a bill out of the upper chamber. He's been pret-tay, pret-tay, pret-tay confident that he'll be able to get a bill together before he retires after his term ends, but as you may or may not know, tax reform is a delicate process.

You see, most people want tax rates to come down. That means less revenue for the government. Since Majority Leader Harry Reid is having none of that, that means getting rid of a lot of expenditures (i.e. deductions and credits). Most people think that's a worthy goal of tax reform also because tax expenditures are, broadly speaking, what make the code so mind-numbingly complex. No, really. For those of you that haven't taken a look at it, it's god-awful.  

The problem with eliminating expenditures is there are large groups of tax lobbyists (we're still looking for a collective noun) working on the Hill to ensure their clients' precious deductions, credits, gaping loopholes, etc. are preserved. In other words, they and their clients prefer that the tax code is complex and they have the money and the access to prevent any meaningful tax reform from occurring.

Oh, yeah. It's a complete fuckshow.

To make matters even more complicated, this past summer, Baucus announced that the Finance Committee would be going with a "blank slate" approach to tax reform. That meant that all the provisions — even the most popular and entrenched ones — would be on the table for elimination. You can imagine how this could intensify the lobby frenzy that was already going on and it also got people wondering which deductions would survive the process.

Today, Baucus gave us a good indication of three biggies that aren't going to be touched:

Baucus, 71, said he’d like to get the top corporate tax rate into the ‘‘high 20s,’’ down from 35 percent currently, though higher than the 25 percent target set by his House Republican counterpart, Dave Camp. Obama has called for a 28 percent rate for most companies and 25 percent for manufacturers.
 
Baucus said his plan would provide a ‘‘permanent solution’’ to U.S. international tax rules that encourage companies to leave profits outside the country.
 
"Frankly, the failure to do reform is hurting the economy," he said. "There’s no question of that." 
 
He was less specific about a rate target for individuals. Camp, chairman of the House Ways and Means Committee, has proposed a top rate of 25 percent, down from today’s 39.6 percent. "Look, it’s hard, because there are a lot of provisions that people like a lot, whether it’s charitable deduction or mortgage or state and local, whatnot,” Baucus said. "But, still, I do believe that we can dramatically simplify the code."
There you have it. Three deductions that aren't going anywhere. Collectively, the charitable, mortgage interest, and SALT deductions cost the government about $170 billion in 2011 according to the stats in this Washington Post report from that year. And if you feel like speculating on the "whatnot" Baucus threw in there — I'm going with the property tax deduction (worth about $19 billion in '11) — that will add to the pile of money being left on the table.
 
So if we can keep it to those 3-4 deductions, then yeah, the code is going to get simpler. It's the "whatnot" that could be a problem. 
 

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