WASHINGTON — The Senate’s chief tax writers want to scrap the entire code and start from scratch in their push for a tax overhaul, and on Thursday they gave lawmakers a month to make a case for preserving some of the $1.3 trillion in breaks on the books.
In a letter sent to all 98 of their colleagues, Senate Finance Committee Chairman Max Baucus, D-Mont., and his Republican counterpart, Sen. Orrin Hatch of Utah, said they would take a “blank slate” approach to the tax code that assumes the removal of thousands of popular perks, including such sacrosanct policies as the deduction for mortgage interest, the child credit and the lower tax rate for dividends and capital gains.
“This blank slate is not, of course, the end product, nor the end of the discussion,” Baucus and Hatch wrote. “Some of the special provisions serve important objectives.”
However, the letter continues: “The tax code is also littered with preferences for special interests. We plan to operate from an assumption that all special provisions are out unless there is clear evidence that they: (1) help grow the economy, (2) make the tax code fairer, or (3) effectively promote other important policy objectives.”
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The announcement puts Senate tax writers on the same page as House Ways and Means Committee Chairman Dave Camp, R-Mich., and clears the way for substantive work to begin on the first comprehensive rewrite of the tax code in nearly three decades.
The plan touched off grumbling among some Democrats, who would be forced to defend favored breaks, such as the deduction for state and local taxes. But it drew praise from many Republicans, and from advocates of debt reduction, who say the zero-based approach increases the odds that lawmakers will agree to eliminate some expensive tax breaks.
Aides in both parties acknowledged that a tax bill cannot pass unless President Obama and congressional Republicans resolve their long-standing dispute over the national debt. Obama wants a tax overhaul to generate additional revenue as a way to rein in borrowing; Republicans say they will agree to fresh revenue only if Democrats agree to restrain spending on expensive health and retirement benefits.
That fight is likely to be revived in the fall, when Congress, once again, will risk a national default on its debt obligations unless it agrees to raise the federal debt limit.