Transcript: Q&A with Sen. Max Baucus on tax reform & deficit reduction

Bipartisan Policy Center’s panel discussion “The Tax Piece of the Debt Puzzle” on June 11, 2012 

Transcript of Q&A with Sen. Max Baucus (D-Mont.), Chairman of the Senate Finance Committee, on tax reform and deficit reduction: 

Question: 

“Sen. Baucus, I wonder how what you’re proposing in terms of an international tax system differs from what Chairman [Dave] Camp (R-Mich.) proposed last fall?”

Sen. Max Baucus (D-Mont.): 

“Well, I’m not sure what he proposed, frankly, and none of us know precisely.

“The main thing is this: I believe too often in this town we’re focusing on the mechanics – that is, broaden the base and lower the rates. Should we have a territorial or a worldwide system. Rather, we should figure out what we want to accomplish with tax reform. What’s the real reason for tax reform? Why are we doing this? Sure, it’s complicated. It’s not very simple. We know all that. But I don’t know that we should make the changes simply for the sake of simplicity or simply for the sake of broadening the base and rate reduction, base-broadening, which I agree with. I think there’ll be certain benefits. But while we’re doing so, let’s figure out what we want for our country. That, I think, is what’s slightly different from Chairman Camp. I think if he and I were to sit down and talk about all these points, I think he would agree. We’ve had several meetings already. But my main point is let’s focus on the results we want.

“The world’s changed so much. There’s so much at stake. It is partly the ‘fiscal cliff’ that has to be addressed. No debate there. But here’s an opportunity to sort of re-focus our direction so that our kids and our grandkids are much more likely to be better off than we are. We all have a moral obligation when we leave this place to leave it in as good a place, in better shape, than we’ve found it, and here’s an opportunity, especially since there has not been a major change to the code since ’86.”

Question: 

“What do you think the most likely scenario is for an end-of-the-year deal dealing with the ‘fiscal cliff’, the sequester? Some people think a one-year extension and some kind of trigger or fast-track to get tax reform going and force the issue. And then can you talk about how you see – how you divide the Bush era tax cuts in terms of the wealthy. Nancy Pelosi has called for a vote on earners with $1 million or more in income. Do you think that’s the way to go or stick with the $250[k] metric?”

Sen. Max Baucus (D-Mont.): 

“With all respect to all of those specific suggestions, I, again, think that the better approach at this point in June is to do what many of us are doing – namely, engage in a lot of discussions [with] Republicans and Democrats. I’ve attended many such meetings in the last several weeks, by and large, keying off of Rivlin-Domenici, keying off of Bowles-Simpson. They tend to be rough starting points that people tend to agree with. To be candid, I don’t think many members of Congress drill down the details in Bowles-Simpson and Rivlin-Domenici. And that’s part of the exercise here.

“I’m going to hold hearings on each one – on Bowles-Simpson and Rivlin-Domenici. That’s an opportunity for Senators to better understand what is included in each and better understand the trade-offs that are needed in order to reach a solution. Starting, say, with entitlements. People talk about entitlement reform. Well, what is meant by that? There are various actions that one can take under Medicare. But the Senators and the country, frankly, need to know what the trade-offs are and what each change actually costs or what the consequences are. Same thing on the revenue side.

“I firmly believe that the more there are facts, people tend to focus on facts and less on the rhetoric. I’m trying to get away from the rhetoric and get people to think about the facts. In these hearings, we work together to get tax reform and deficit/debt reduction. My view is everything is on the table. That’s a psychology which I think is very important to keep people talking, keep people working.

“I’m going to be having a meeting at the Finance Committee next week with members of the Finance Committee. It’s probably the first step. Members only. But we’re going to talk about the traditional extenders only and is there a way to get traditional extenders passed down the road – extending some, repealing others – without any games. By that I mean, Democrats don’t offer Buffett tax and Republicans don’t offer to repeal the estate tax. Let’s just stick within the confines of the traditional extenders. That’s a chunk that we can maybe deal with. And then my hope is that Senators start talking among each other, develops more trust. We start figuring out better what to deal with the cliff.

“But the precise questions you asked are, I think, questions that we’re going to have to put off. We’re going to get this solved one way or another. The better way [it] gets resolved is if there’s more agreement as what it should be.

“It’s also my view, which not everyone subscribes to, is that we should try to avoid to [put this in] votes prior to the election. Because I don’t want the members of the House and Senate too locked in and make it difficult for ‘lame duck’ to do what’s ‘correct’ – the right thing to do. We all know what’s the right thing to do. It’s just a matte of politically getting there.”

Question: 

“Do you support some kind of mechanism in place… an end-of-the-year deal that you feel that will force tax reform?”

Sen. Max Baucus (D-Mont.): 

“That should certainly be on the table. I know Chairman Camp talked about that and I think it’s an idea that has to be fully explored because otherwise you’re begging another big issue – that is, should the tax cuts be extended or should they expire? And which ones extended and which ones expire? Chairman Camp talks about extending them all for six months or so [and] then doing tax reform. The danger there is the Congress won’t act and won’t address the deficit. And I think that’s the big danger. And his answer to that is a trigger. Well, we looked at triggers in [the] Super Committee. We might be able to find a trigger. We’ll see.”

Question: 

“Could you address a little bit the issue of how flat the code should be? It’s in vogue right now that there should be just a few rates and basically all kinds of tax incentives, tax expenditures should be eliminated. Can you accomplish the kinds of goals that you’re talking about with that kind of flat code?”

Sen. Max Baucus (D-Mont.): 

“Well, all things being equal, the flatter the better. But all things are never equal. There’s so many other considerations.

“Let me just put it this way. Sometime ago when Mr. [Steve] Forbes ran for President, he advocated ‘flat tax’ and it was supposed to be revenue-neutral. And as I recall, that would be about 18% – 19% flat tax that everybody would pay. I may be wrong on the precise rate but it was close to that. And the thing is, people started realizing the actual effect of that, they backed off. Under that proposal – that flat tax proposal – those with income above $200[k] get big windfall back then and those under it would have to pay a lot more taxes. And a lot more people would have to pay more taxes than get the windfall. You have to be very careful.

“And I might say, too, that some of the flat-like proposals also suggest major tax expenditure eliminations to get there. I think some of that is unrealistic politically how much that can happen.

“There’s another factor here: it’s revenue. If we’re going to solve our debt and deficit, we have to look at revenue. We have to look at revenue. Mathematically, arithmetically there is no escape. We have to.

“But my major point is in my remarks, namely…let’s see what we can do to get growth. Let’s see what we can do to get our country more competitive. Let’s see how to make our country even more innovative.

“One major advantage we have in America is our creativity, our innovation. As wages worldwide fall – China’s aren’t not falling; they’re coming back up again a little bit – the major – a lot of manufacturing goes to a lot of other countries. Most don’t come back to the U.S. – they go elsewhere. The major advantage that we have is our creativity. There’s a reason why Google and Microsoft and Apple and Facebook were American companies, and we have to maintain that. You hear it constantly. Travel around the world, you constantly hear that. It’s the one advantage we have today as a country. And we’ve got to really make sure we maintain that and keep it.

“And it’s growth. Look…we’ve got to find ways to grow in this country. The code can’t do it all, I grant you. And the code can’t only address the maldistribution of income in our country. Can’t do it all. But the code is a useful tool and a terrific opportunity to address growth, innovation, and try to, in some way, deal with maldistribution.”

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(Edited by Jenny Jiang)