Is this an orderly process of tax reform?

July 12, 2013

Although there are people, like Bond Dealers of America CEO Mike Nicholas, who have predicted that federal tax reform will not happen until 2017, the Senate Finance Committee has kick-started the process. Law firm KL Gates sent out a primer about the Senate Finance Committee plans:

The momentum toward comprehensive tax reform accelerated significantly on June 27th, 2013, when the bipartisan leaders of the Senate Finance Committee, Chairman Max Baucus (D-MT) and Ranking Member Orrin Hatch (R-UT), sent their Senate colleagues a joint letter requesting Senators to submit their tax reform proposals by July 26th, 2013. [1] In doing so, Senators Baucus and Hatch are beginning to set the table for the Finance Committee to consider tax reform in the coming months. As discussed in our previous alert, the time to weigh in on tax reform is now.

Senate Finance Committee members Senators Max Baucus and Orrin Hatch have asked all senators for their tax reform wish lists:

The [Baucus-Hatch] letter is significant in several respects. Perhaps most importantly, it asks Senators to start from a “blank slate”—that is, to assume that all tax credits, deductions, and other tax expenditures are repealed. From here, Senators are asked to propose which expenditures should remain in the Tax Code, and make other recommendations on tax provisions that should be added, repealed, or reformed during tax reform. Thus, the Finance Committee has effectively put every tax expenditure,and potentially an even wider array of issues, on the table while also acknowledging that some tax expenditures should be retained.

Imagine the size of the lobbying effort that will accompany this process. KL Gates again:

Who can submit proposals? Only members of the U.S. Senate can submit proposals. This aspect of the Finance Committee’s process differs substantially from the House Ways and Means Committee’s Working Group process, which actively sought direct input from businesses, trade organizations, and members of the general public.

The Bond Dealers of America gathered 137 signatures from House members who support continuing the municipal bond tax exemption, but they are unlikely to garner many signatures from the Senate, where members hold their support closely to the vest.

The curtains have opened on the tax reform process. Like Nicholas, KL Gates believes that tax reform is unlikely to be completed in the near term. Here are the upcoming steps forward:

After the submission process is complete, the Finance Committee intends to begin drafting a comprehensive tax reform bill, with the goal of completing the bill by early fall 2013. The Committee would then proceed to schedule a markup of the legislation before the end of the year. The proposals that the Finance Committee receives before July 26 are likely to play a key role in the Committee’s development of this legislation.

What will happen to the municipal bond tax exemption is still unknown. But know there is now a timetable for the process.

Read more of the KL Gates piece here.

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