Tax reform takes bipartisan step in Senate. Could something come of it?

The comprehensive tax reform urged by many in Congress and both presidential candidates may have taken a small step forward on Thursday, as the Senate Finance Committee passed a package of some 50 tax provisions that have expired or are about to expire at year's end on a bipartisan, 19-5 vote.

The bill also fixes one Congress’s perennially recurring crisis points with a two-year “patch” to prevent the Alternative Minimum Tax (AMT) from hitting millions of middle-class Americans after Jan. 1. The bill’s price tag comes to roughly $205 billion over the next decade.  

While that’s small potatoes in terms of a more than trillion-dollar federal budget this year alone, Senate Finance Committee Chairman Max Baucus (D) of Montana saw the so-called tax-extenders debate as preparation for a larger tax-reform push in 2013.

The committee pared 20 provisions from last fiscal year's tax-extenders package, for example, a dry run for the type of tax-preference cleansing that members of both parties want in exchange for bringing down tax rates.

“No bill is perfect, but what’s important is this shows the American people that Congress can work together to get things done,” Senator Baucus said in a statement after the vote. “This bipartisan work is just what all members of Congress will need to do with the fiscal cliff looming and tax reform on the horizon.”

With the Senate heading out for its month long August recess, it remains to be seen when – or if – the bill will make it to the Senate floor for a vote.

The tax extenders debate is important because Baucus has carefully nurtured talks with both Republican and Democratic members of the Senate Finance Committee since shortly after a June 11 speech to the Bipartisan Policy Center, where Montana’s senior senator laid out his vision that educating members on the heavy lift of tax reform might begin with the relatively light load of the extenders bill.

Tax extenders are “a chunk that we can maybe deal with,” Baucus said in June. “And then my hope is that senators start talking among each other, develop some more trust, [and] we start to figure out better how to deal with the cliff.”

The cliff Baucus refers to is the year-end “fiscal cliff” of some $560 billion in higher taxes and lower spending that will slam the US economy if Congress does not act to head it off. The most realistic case for avoiding that fate, legislators on both sides of the Capitol say, is a deal holding the cuts at bay into 2013 to allow for lengthy negotiations and, perhaps, the possibility for wide-ranging tax reform that would fundamentally change the government’s taxing and spending.

The Senate process is in stark contrast to the House, which also had tax reform on the docket Thursday but has proceeded on strict, partisan lines. That chamber passed a bill by House Ways and Means Chairman Dave Camp (R) of Michigan Thursday laying out a fast-track proposal for tax reform in 2013. The bill passed 232-189, without a single vote from Democrats.

House lawmakers from both parties have said that bipartisan talks about just how to achieve tax reform have yet to begin.

However, the Senate's more bipartisan approach doesn't mean that negotiations are easy. Sen. Tom Coburn (R) of Oklahoma offered several amendments to the bill, mostly attempting to strip more provisions from the package. A famously independent legislator, Senator Coburn has tangled repeatedly with anti-tax activist Grover Norquist and took part, with Baucus, in the bipartisan Gang of Six negotiations aimed at a massive debt reduction deal during the summer of 2011.

After one relatively sharp exchange over his plan to eliminate a tax credit to spur development in low-income neighborhoods, Coburn warned his colleagues that although he sounded like a “voice in the wilderness” on spending now, the nation’s dire fiscal trajectory would force cuts to just such programs in the future.

Baucus responded: “Senator, you’re not a voice in the wilderness.“

"This bill is a good first step," Baucus added in his closing comments. "We just eliminated 20 provisions to the code. It’s a good first start.”