Senate Dems: Give us tax hikes or you get no tax reform

Over the last two years, a groundswell of movement has happened behind the scenes on Capitol Hill. Rep. Dave Camp (R-Mich.) has been working to convince his colleagues of the need for tax reform. Recently, Max Baucus has begun to spearhead that same initiative on the Senate side. And indeed, with Orrin Hatch signed on, it has looked like this is something that could happen.

It’s important to note that we’re only talking about tax reform, not cuts. That’s what has kept this tenuous bipartisan movement together. The approach is largely revenue-neutral and would likely end up distributionally similar to what we have now. But with economists estimating that the cost of tax complexity could be up to $1 trillion every year, merely having a revenue-neutral and simpler tax code could be hugely beneficial for the American economy.

Ed wrote yesterday that the path has not been all candy and sunshine. Baucus and Hatch promised their colleagues that some of the details of these Hill negotiations would remain secret for fifty years. And Ed isn’t all that optimistic on this push for tax reform more generally, either. Still, it’s the best opportunity in years.

Senate Democrat leadership wants put a boot to all of this. Harry Reid and Chuck Schumer appeared yesterday to demand that any tax reform must actually be a tax hike, as reported by Bloomberg:

Any tax overhaul “has to be under the total understanding that this can’t be revenue-neutral,” said Reid, a Nevada Democrat. “It can’t be even close to neutral. It has to be a significant tax target.”

That target, according to Reid and Schumer, should be what the Senate Democrats’ tax-hiking budget aimed for – a tax hike of nearly $1 trillion. Needless to say, that’s a non-starter. Republicans in both the House and Senate agreed to more than $600 billion in tax hikes – mostly from upper-income-earners – on January 1 this year as part of the fiscal cliff deal.

Schumer and Reid’s bluster threatens to kill the tax reform movement before it has a real chance. If Democrats are going to marshal around the idea that the tax code is fine as it is and that Republicans will have to give up substantial tax hikes just to simplify the code, we’re not getting reform.

It’s too bad, too. The Baucus-Hatch plan in the Senate would challenge legislators to have to defend special interest tax subsidies on an individual basis. It’s an approach that’s been endorsed by the Alan Simpson/Erskine Bowles coalition. It would grow the economy without growing government revenues. And Senate Democrats would rather exact a pound of tax-hike flesh in order to allow it to happen.

This could all just be petty politics on the part of Reid and Schumer. Their supposed “baseline” for tax hikes is taken from the Senate Democrat budget that was passed this year because Republicans demanded it. Max Baucus was one of a few Senate Democrats who voted against the budget of the Senate Democrats. Baucus is retiring. This might just be Schumer & Reid’s last parting shot at a member of the Democrat caucus who has not always towed the party line.

Whether it’s their love of bad policy or merely the pettiness of personality politics, Schumer and Reid’s move is bad news for simplicity, reform, and economic growth.