Time to scrap, fix entire tax code

Whew.

Seventeen days later, leaders in Washington, D.C. finally reached some agreement and reopened the government last month, ending a shameful and entirely avoidable circus. But unlike “resolutions” to past crises, the fact that elected officials, including our own Sen. Patty Murray, have promised to “make difficult decisions” and address our nation’s larger economic problems between now and Jan. 15 — namely our $17 trillion debt — brings some optimism for a change.

By coming to the table through a formal budget conference that we have been calling for now for quite some time, the other Washington has the opportunity to deal directly with tax and entitlement reform, the former of which is both the easiest fix and the most urgent. Thanks to the hard work of Senate Finance Chairman Max Baucus (D-Mont.) and House Ways and Means Chairman Dave Camp (R-Mich.), there is a path forward to making it a real possibility.

The duo, along with Senate Finance Ranking Member Orin Hatch (R-Utah), spent the summer drafting legislation that would scrap the entire tax code and rebuild it one page at a time, defending inclusions on an individual basis. As it currently stands, deductions, exclusions and other preferences have returned over time to a code last overhauled in 1986 in the form of roughly $1.3 trillion in annual backdoor spending that now litters the tax code.

As a result, our complex code made up of expensive, regressive and economically distorting preferences not only wastes valuable resources and prevents our nation from being more globally competitive, it is reducing the money that should be coming in to fund government programs and reduce the debt.

The higher than necessary rates, narrow base and sheer complexity in the tax code hurt economic growth by driving up compliance costs and reducing incentives to work, save, and invest. This is true for Microsoft as much as it is for the restaurant owner in Uptown Vancouver or the tech start up in the University District of Seattle.

Now through the muck of funding the government, we believe that a comprehensive rewrite of the tax code — a vital component in lowering the nation’s $17 trillion debt by gaining back needed revenue and eliminating preferential treatment of particular businesses — is a real possibility. Clearly challenges exist — particularly partisan differences and political hesitation to eliminate or restrict certain tax breaks — but the efforts by Rep. Camp and Sens. Baucus and Hatch are a clear step forward and may be the last chance any time soon for reforming our inefficient and outdated tax code (Sen. Baucus retires in 2014 and Rep. Camp loses his chairmanship in 2014).

As a member of the Campaign to Fix the Debt, we commend Sens. Baucus and Hatch for taking such a bold approach in putting forth the “blank slate plan” and call on leaders like Senate Budget Chairwoman Patty Murray and House Ways and Means Committee member Dave Reichert (R-Wash.) to make this happen in 2013. Those in support of such reform deserve public recognition for providing valuable leadership and forcing a real discussion on tradeoffs that will advance the cause of serious tax reform and possibly broader fiscal reform.

Starting anew and requiring those seeking breaks to add back tax preferences to pay for them with rate increases, would lead politicians to subject tax expenditures to much greater scrutiny and, if desired, then to restore worthwhile tax expenditures in a more efficient and cost-effective manner.

The decision by Sens. Baucus and Hatch to use this approach leaves me hopeful that Washington can enact tax reform to attain lower rates, level the playing field, improve simplicity, promote robust economic growth, and reduce the deficit. By extension, this will create greater certainty in the market and enable businesses in our state to grow.

We see this as a notable case of bipartisanship and hope that other leaders in the House and Senate will rise to the challenge and act responsibly in using the savings from eliminating the $1.3 trillion in annual ‘tax expenditures’ to lower rates in a progressive manner, reduce the deficit, and restore those tax provisions they consider worthwhile in a more efficient, cost-effective manner.

Now is the time for tax reform.

Tim Leavitt is the mayor of Vancouver, Washington. Chris Vance is the former chairman of the Washington State GOP and a public affairs consultant. They are co-chairs of the Washington Chapter of the Campaign to Fix the Debt.

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