Tax reform: How Ron Wyden will shape taxes

Senator Ron Wyden (D-OR), who is poised to become the new chair of the Senate Finance Committee, is the sponsor of a major tax reform plan that would reduce both individual and corporate tax rates without adding to the deficit or changing the current distribution of taxes among income groups very much.

The 64-year-old Wyden, who has a history of proposing creative, ambitious, and sometimes controversial ideas, initially sponsored a tax code overhaul in 2010 with former GOP senator Judd Gregg of New Hampshire. After Gregg retired, Wyden found another GOP cosponsor in Dan Coates of Indiana. Wyden-Coates follows the broad outline of the original Wyden-Gregg plan.

For individuals, it would set three rates—15-25-35. The top bracket would kick in at $140,000 for couples filing jointly. It would repeal the Alternative Minimum Tax, nearly triple the standard deduction, and create a 35 percent exclusion for long-term capital gains and dividends (equal to a rate of 22.75 percent for top-bracket taxpayers). It would eliminate the tax advantages of many employee benefits–but not employer-sponsored health insurance–and simplify tax-preferred savings.

While the plan would preserve most other individual tax preferences, the very large standard deduction would sharply limit the number of taxpayers who take them (even today, fewer than one-third itemize). 

Wyden-Coates would cut the corporate rate to 24 percent from 35 percent. It would end the ability of U.S. multinationals to defer tax on income earned abroad but would allow them a one-time opportunity to bring old earnings back to the U.S at a very low rate.

The plan includes a handful of other corporate reforms, but leaves it up to Congressional Budget Office to identify other preferences to eliminate.

In 2010, the Tax Policy Center modeled the original Wyden-Gregg plan and found that it would have raised about the same amount of money as today’s law and been slightly more progressive. While the both the tax baseline and the proposal have changed a bit from 2010, Wyden’s plan appears to do a good job threading both the revenue and distribution needles—something most other overhaul plans have failed to do.

However, Republicans are more likely to support a reform that is revenue neutral than Democrats, many of whom insist any revised tax code must raise new money.

Wyden is in many ways the un-Baucus. While the Montanan is cautious and much more comfortable working behind the scenes, Wyden enthusiastically promotes his ideas in the public marketplace. Like many lawmakers, Baucus does not dive deeply into the details of legislation. By contrast, Wyden is a true policy wonk who thrives on the minutia.

Tax reform is not Wyden’s only interest. He’s also been deeply involved with two other issues in the panel’s jurisdiction–health reform generally and Medicare in particular. It will be key to see what priorities he sets as committee chair.

That’s especially true given coming changes at the House Ways & Means Committee. Budget Committee Chair Paul Ryan (R-WI) is angling to replace Dave Camp (R-MI), who will lose his tax panel chairmanship in 2015 as a result of House GOP term-limits.

Ryan and Wyden have interesting history together. In late 2011, they briefly got behind a Medicare overhaul framework that would have given seniors a choice between a traditional plan and private insurance funded with a government voucher (sometimes called premium support). Wyden later backed away under pressure from Democratic leaders when the idea got caught up in 2012 presidential politics.

Wyden isn’t afraid to buck conventional wisdom or his party’s leadership in his search for out-of-the-box ideas. And his willingness to work with Republicans on hot-button issues has made some liberal Democrats nervous. It will be interesting to see if he can remain as proactive and creative once he becomes chair of the finance panel.