Rep. Sander Levin: Debt ceiling standoff may make tax reform harder

The lingering impasse from December’s "fiscal cliff" threatens to swamp Democrats' efforts to achieve priorities such as broad changes to gun regulations and a drive for comprehensive immigration reform. But if the fights over the debt ceiling and the budget-cutting sequester stretch well into 2013, tax and entitlement reform could also be at risk, the top Democrat on the House tax-writing committee said Tuesday.

Rep. Sander Levin (D) of Michigan told reporters at a breakfast sponsored by The Christian Science Monitor that Congress needs to “extend, if not end” the debt ceiling for a “considerable period of time” and replace the sequester – some $1.2 trillion in spending cuts over the next decade – with a mix of higher taxes and lower government spending.

Congress has roughly six weeks before those issues – and the need to extend funding for government operations – come to a head. 

If President Obama and congressional Republicans can reach agreement those issues by then, Levin, the ranking Democrat on the House Ways and Means Committee, believes there’s plenty of time for Congress to handle a reform of taxes and entitlement programs in 2013.

“I’m hopeful, if we don’t drag this out, as some people are saying,” Levin said, referring to rumored proposals for one- to three-month debt-ceiling increases, said to be favored by some House Republicans. “Those who are saying, let’s do it dribble by dribble, they’re the ones who would be undermining the effort to sit down and have a serious discussion on tax reform and the entitlements.” 

Reform of the federal tax code, and especially lower tax rates across the board, is a priority for Republicans and some Democrats. 

Nothing in law or congressional history would prevent Congress from handling a plethora of complex issues at once. But the legislative branch, coming off the least-productive congressional session in American history, has not acted in ways that square with congressional leaders' assurances that they can carry not only fiscal issues but also a host of other heavyweight legislation in the year to come. 

Indeed, Congress already may have made its task of reforming the tax code more difficult. In the recent deal to avert the fiscal cliff, lawmakers agreed to raise more revenues in part by by phasing out some tax deductions for wealthy Americans – some of the very deductions that were widely viewed as grist for a tax reform plan that would reduce statutory tax rates.

Moreover, Levin said Congress would have to consider cutting other tax benefits and loopholes – such as the exemption of taxation on municipal bonds and the preferential tax treatment of financial gains known as “carried interest” – to provide revenue to offset the sequester, further shrinking the number of tax carve-outs that could be traded away for lower rates. 

Levin says that eliminating these proposals would not make the end process more difficult. Instead, he believes that whittling down the tax code will make lawmakers bear down on the specifics of tax reform. 

“What it does,” Levin says, “is it forces people to be more concrete about what they mean when they talk about tax reform.” 

But in the best case, will it happen? 

“I’m not very confident,” Levin says. “I’m hopeful.”