Senate Finance Committee Leaders Take “Blank Slate” Approach to Tax Reform

Senate Committee on Finance Chair Max Baucus (D-MT) and Ranking Member Orrin Hatch (R-UT) sent a letter to their Senate colleagues on June 27 saying, “in order to make sure that we end up with a simpler, more efficient and fairer tax code, we believe it is important to start with a ‘blank slate’ that is, a tax code without all of the special provisions in the form of exclusions, deductions and credits and other preferences that some refer to as ‘tax expenditures.’” Senators Baucus and Hatch asked their fellow Senators to “formally submit legislative language or detailed proposals” for what tax expenditures they would like to see put back in, “as well as other provisions that should be added, repealed or reformed as part of tax reform.” They said that any tax expenditures to be included in a reformed tax code should: “(1) help grow the economy, (2) make the tax code fairer, or (3) effectively promote other important policy objectives.” Bipartisan submissions are encouraged. The deadline for submissions is July 26, 2013.Essentially, they are asking that Senators defend each federal tax expenditure if they want it to be included in the tax code after it is reformed. A federal tax expenditure is a provision in the U.S. tax code that allows individual or corporate taxpayers to reduce the amount of federal income tax owed if they meet certain criteria. Tax expenditures are more familiarly known as tax breaks or tax loopholes. Most economists and tax policy analysts agree that tax expenditures are spending through the tax code, whose objectives could be met just as easily through direct spending. Tax expenditures result in taxes not being collected and thus are a cost to the federal Treasury. In their letter, Senators Baucus and Hatch provide a link to the list of tax expenditures published by the Joint Committee on Taxation (JCT) on February 1, 2013.The mortgage interest deduction is the second largest federal tax expenditure, estimated to cost $71.1 billion in 2014 by the JCT. Tax expenditures that are important to low income people are the Low Income Housing Tax Credit, the Earned Income Tax Credit, and the Child Care Tax Credit.This “blank slate” approach offers the United for Homes campaign the opportunity to have our proposal for mortgage interest reform and funding for the National Housing Trust Fund (NHTF) considered by the Finance Committee. The United for Homes proposal calls for the cap on the size of a mortgage for which a household can get a tax break to be lowered from $1 million to $500,000, and for the deduction to be converted to a 15% non-refundable credit. All the revenue raised from these changes should be applied to the NHTF.NLIHC and the United for Homes campaign will work with key Senators to make sure they submit our proposal to Senators Baucus and Hatch. The campaign sent a notice to United for Homes endorsers encouraging them to contact their Senators. View the letter from Senators Baucus and Hatch here: http://bit.ly/14IS0nOView the notice to UFH endorsers here: http://bit.ly/14ICTL9