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Wall Street Journal - House GOP Gears Up for Tax Fight

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Location: Washington, DC

By Siobhan Hughes

House Republicans, preparing for a year-end expiration of tax cuts, this week begin meetings within their caucus in hopes of building a strategy that can both garner significant GOP support and counter Democratic attacks on tax policy.

The planning sessions, described by aides and lawmakers, are being led by House Ways and Means Committee Chairman Dave Camp (R., Mich.) and hosted House Majority Whip Kevin McCarthy (R., Calif.).

The sessions are expected to pave the way for tax-related votes, possibly before the November elections, in order to shape the debate over Bush-era tax cuts and so-called tax extenders in an election season featuring sharp divides over tax policy.

"Moving forward on tax questions now before the election is a good thing to do," said Rep. Peter Roskam (R., Ill.), a member of the House GOP whip team, in an interview on Monday. He declined to comment on the timing of any votes or the elements of any package, but said that among the items in the mix of discussions is whether to extend the 15% rate on dividends and capital gains.

Republican leaders face a landscape that is filled with challenges. Democrats are tying Republicans to social inequality, arguing that the 2001 and 2003 tax cuts implemented under former president George W. Bush widened the gap between rich and poor.

Democrats sense that Republicans are vulnerable on the issue, especially given the wealth of presumptive Republican presidential nominee Mitt Romney, who revealed this year that is own effective income-tax rate was about 14%. The top rate is officially 35%.

In the meantime, the Republican leadership also must deal with an unknown factor: 87 GOP lawmakers, or about one-third of the caucus, are from the freshman class and haven't been through votes to extend expiring tax breaks and cuts. An additional complication is that decisions made this year will feed into a corporate-tax overhaul planned for next year.

"A lot of members of Congress have never been through fundamental tax reform, nor even the corporate battles of the mid-2000s," said Rep. Kevin Brady (R., Texas), a member of the House Ways and Means Committee. "What Chairman Camp hopes to do is lay a foundation of knowledge for House members so that they understand both the reasons our tax code is what it is today; what the impact of our most popular extensions, credits and deductions are, and to begin the thought process of what tradeoffs will occur in order to significantly lower those tax rates."

The main precedent so far, on extending a payroll-tax cut, was unwieldy at best, and left House Speaker John Boehner (R., Ohio) struggling to find a middle ground. That is a potential issue when it comes to the whole host of expiring tax breaks--such as a research-and-development tax credit and alternative-energy tax supports--which some longer-term Republicans favor.

"I also think Chairman Camp is taking the temperature of the conference to determine if there is support for trying to move some of those extenders off our plate before the lame duck," Mr. Brady said. "I think that's not likely necessarily...but too many hopes and dreams are being pinned on this lame-duck session, which I always think is a mistake."

Republican lawmakers of all stripes expressed broad support for low taxes and were quick to pounce on President Barack Obama, who this week has been out front with a populist message in favor of a 30% minimum tax on millionaires. But it is less clear that Republicans are of one mind when it comes to the details of their own tax policy.

Freshman Rep. Bill Flores (R., Texas) expressed reluctance to support more than a handful of tax deductions, saying that "to the extent that you've got all of these tax extenders or tax provisions that have to be considered when you make an investment or spending decision, to me those are things that should go away."

He said that "the only one" that he might support is the research-and-development credit. "I'm not putting a stake in the ground on this, but I would listen," he said.

In the meantime, freshman Rep. Mo Brooks (R., Ala.) favors repealing the national income tax and shifting to a national sales tax instead. On issues such as extending the current 15% dividend and capital gains tax rate, he said, "I don't have a fixed position."

He came out in support of allowing companies to bring foreign earnings back to the U.S. without paying U.S. taxes. "What right does the federal government have to tax money that's not earned in America?" he asked.

House Republicans will have to take in all these perspectives in order to come up with a strategy with the backing of a majority of their majority. And they will have to fill in some key blanks, such as whether the deficit-wary GOP freshmen support tax cuts without tax increases or spending cuts elsewhere.

"We haven't walked as close into that debate as we have other things," Mr. Roskam said. "We'll find out. My instinct is that's the case."


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