Tax reform

Ryan's move could be big boost for tax reform

By Brian Faler

Paul Ryan’s rise to House speaker is fanning hopes that a once-in-a-generation tax overhaul might be on the horizon.

The Wisconsin Republican who claimed the gavel last week is one of Congress’ preeminent tax experts, an ardent advocate of rewriting the code with lots of ideas on how to do it. Over the years, he’s gone further than most lawmakers in pushing politically fraught changes that have gone nowhere, such as wiping out a major tax break for employer-provided health plans and making it harder for the wealthy to claim the hugely popular mortgage-interest deduction.

But now Ryan has far more power to put the issue on Washington’s agenda — and the latest budget deal between congressional leaders and the White House should give him ample room to launch his speakership without being distracted by constant battles over funding the government and raising the debt limit. So some advocates are recalibrating the odds of a long-elusive tax overhaul that they say could spur new jobs and bring corporate money back from overseas.

Sweeping tax change won’t happen this year, supporters say, with lawmakers still staring at a stack of unfinished business — or next year, when the 2016 election will loom even larger. But they say it’s suddenly a lot more likely in the early years of the next presidency, especially if the Republicans win the White House.

“It certainly comes as close to guaranteeing it as possible,” said a top Republican staffer. “It’s his No. 1 priority — it’s what he cares about most.”

The sort of ambitious reform Ryan has in mind, which would be the first since 1986, promises to cut both individual and corporate tax rates in exchange for junking scores of credits, deductions and other special provisions. Any rewrite would be hugely controversial, with an array of powerful interest groups sure to line up to defend their favorite provisions, not to mention many Democrats who’ve long complained that Ryan’s plans amount to a giveaway to the rich.

In a speech to the House just before his swearing-in Thursday, Ryan named tax reform as one of his top priorities.

Voters “look at Washington and all they see is chaos — what a relief to them it would be if we finally got our acts together,” Ryan told his colleagues. “How reassuring it would be if we actually fixed the tax code, put patients in charge of their health care, grew our economy, strengthened our military, lifted people out of poverty and paid down our debt.”

“The cynics will scoff — they’ll say it’s not possible,” he said. “You better believe we’re going to try.”

That would be a big change from tax reform’s fate under John Boehner.

It was the former Republican leader who, in 2013, pulled the plug on a long-promised tax reform bid by former Ways and Means Committee Chairman Dave Camp (R-Mich.) when it became clear Democrats would not join them in the effort. Boehner prevented Camp from even bringing his three-years-in-the-making tax plan before the panel.

“Blah blah blah blah,” Boehner famously told reporters when asked about the 900-page proposal, the most comprehensive plan offered in the Capitol in at least a decade.

It’s virtually impossible to imagine a similar reaction from Ryan, many say. They note that, as chairman of the House Budget Committee, he dragged his Republican colleagues into backing a partial privatization of Medicare that was doomed from the outset. The proposal handed giddy Democrats years of campaign fodder.

“Paul Ryan will have no problem having Republicans go down the tax-reform path alone,” said a tax lobbyist. “He won’t need the Democratic cover.”

To be sure, Ryan will have plenty on his plate as speaker to keep him busy, and some predict his move will actually hurt the cause of tax reform. What’s more, an overhaul would be a monumental achievement for any Congress, and some are skeptical he can overcome the gridlock that has often left lawmakers struggling with even the most basic tasks of governing.

But Ryan has long been one of his party’s most influential voices on taxes, even before he took over the Ways and Means panel earlier this year.

Ryan, who’s called low marginal rates the “secret sauce” of economic growth, was a driving force behind Republicans’ promises to cut the top individual and corporate tax rates to 25 percent, a pledge that debuted in one of his annual budgets. Camp was unable to make good on that promise as part of his plan, settling for a top rate of 35 percent. (The top rate is now 39.6 percent.)

Ryan likewise was a key figure behind the House’s adoption earlier this year of controversial new budgeting rules known as “dynamic scoring,” which requires scorekeepers to include the likely economic effects of legislation when tallying costs — for instance, the economic growth that conservatives insist would result from lowering rates. Long sought by Republicans, the rule change should make it easier for lawmakers to make the numbers work in any tax reform bid.

He has also proposed a string of politically sensitive tax changes. He’s called for halving the mortgage interest deduction by allowing taxpayers to write off their interest costs on only the first $500,000 of debt. He has said it should be a middle-class break, not one for the wealthy.

He’s called for junking the half-century-old tax exclusion that companies get for providing workers with health benefits. Saying it contributes to rising health care costs, Ryan has proposed replacing it with a portable tax credit people could use to buy their own insurance. That goes even further than President Barack Obama’s reviled “Cadillac tax,” which will begin dunning only the costliest of health plans beginning in 2018.

Ryan wants to kill a long-standing deduction for state and local income taxes, something especially important to high-tax — and Democratic-leaning — states like California and New York. The federal government should not be forcing people elsewhere to subsidize them, Ryan has argued.

And he’s pushed to cull the so-called tax extenders, the mishmash of ostensibly temporary breaks for big banks, charities, teachers, energy companies and sundry others that Congress has been rolling over for years.

“He spent his nights dreaming about tax policy,” Senate Majority Leader Mitch McConnell (R-Ky.) said Thursday, in a speech welcoming Ryan to the new post.

For all of his controversial proposals, Ryan has found some common ground with Democrats.

Like Obama, Ryan wants to expand the earned income tax credit, a wage supplement to the working poor. He’s seconded the administration’s call to expand the program for childless workers, and increasing the maximum aid.

Earlier this year, he pushed for a corporate-only tax reform, arguing it was one area of the code in which Republicans might be able to work with the administration. When that failed, he tried a more narrow reform with Sen. Chuck Schumer (D-N.Y.) focused on rewriting the tax rules for multinational corporations. That, too, stalled.

He has found more bipartisan success on the spending front, working out a deal with Sen. Patty Murray (D-Wash.) in 2013 that offered temporary relief from congressionally imposed caps on expenditures.

But not everyone sees Ryan’s promotion as a boon to tax reform.

Some say Ryan will likely be preoccupied with the daily demands of running the House, when he might otherwise be in the legislative trenches, pushing a plan through all the competing interests in the chamber.

“There’s no doubt that the intention of the speaker to get tax reform will go up,” said Ryan Ellis, tax policy director at Grover Norquist’s Americans for Tax Reform. “But the ability to execute it goes down.”

“If you don’t have your best mind on tax reform devoted to it, and instead have to run the entire House, then it certainly diminishes the prospects,” he said. “Tax reform isn’t just a matter of the will of the House — it’s also the work of the committee,” and Ryan is “uniquely qualified to go through all the nuts and bolts of this, and knows where the bodies are buried and who’s going to hate what, and who has to be accommodated here versus there.”

Others say speakers can involve themselves in whatever issue they like. And though Ryan said he wants to decentralize power by having the committees take the lead in writing legislation, many predict he would be heavily engaged in any overhaul, even if he’s not running Ways and Means.

“He’ll be more involved in tax reform than any speaker ever has,” predicts Ken Kies, a longtime tax lobbyist.