The fate of tax reform in the 113th Congress may depend upon the nature of the agreement by members of both political parties regarding the long-term deficit.
Although some commentators have expressed optimism that reform will occur within the next 12 to 18 months, especially with both chairs of the Senate Finance Committee and the House Ways and Means Committee stepping down at the end of the current Congress, neither party has agreed on what steps should be taken to address the long-term deficit.
Republicans have insisted on exclusively using spending cuts to address the country's fiscal issues, while Democrats have insisted on spending cuts and additional revenue. If Congress and the White House can agree on how to reduce the deficit, "they can slide in tax reform under that," said Mark Mazur, Treasury assistant secretary for tax policy, on May 10. The Obama administration, Mazur said, might be flexible in determining how much revenue should be used to come to a so-called grand bargain for deficit reduction.
Though both parties are at loggerheads regarding handling the nation's long-term deficit, a Congressional Budget Office report issued May 14 said the government's annual deficit is shrinking more quickly than many observers expected. The fiscal year 2013 deficit is expected to fall to $642 billion from a February estimate of $845 billion, the CBO said, citing higher-than-expected tax receipts. Coupled with some additional factors, including the Treasury's undertaking "extraordinary measures," the CBO estimated that without a debt ceiling agreement before May 19, the federal government would hit the statutory borrowing limit in October or November.
Meanwhile, Republicans have suggested using debt ceiling negotiations as a catalyst to implement tax reform. Ways and Means Committee Chair Dave Camp, R-Mich., has discussed the plan with members generally but has not provided specifics on how to proceed with reform if coupled with debt ceiling negotiations. Speaker of the House John Boehner, R-Ohio, has stated that any increase in the debt ceiling must be accompanied by an equal or greater amount of spending cuts. Senate Finance Committee staff are preparing for the possibility that reform may coincide with the debt ceiling negotiations.
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