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Baucus confirms China move; Wyden to take SFC reins

Max Baucus’ move to become US ambassador to China has now been confirmed. As chairman of the US Senate Finance Committee (SFC), Baucus’ name had become synonymous with the issue of US tax reform. Ron Wyden, Oregon Democrat, will take up the SFC chairmanship.

Mark Warner is expected to fill the vacant seat on the committee, though Amy Klobuchar’s name has also been mentioned.

“As I reflect on my time in the Senate, I am proud of our continued fight for smart tax reform,” said Baucus. “Senator Hatch and Congressman Camp have been great partners and I am hopeful that our hard work and collaborative efforts will pave the way for further momentum in the years ahead. It’s a tough road, but ultimately we can’t let politics get in the way of much-needed policy.”

Baucus was a central figure in attempting to make progress in overhauling the US tax code, as his appearances in the 2012 and 2013 versions of the Global Tax 50 indicate.

Alongside Dave Camp, who as chairman of the Ways and Means Committee was Baucus’ counterpart in the House of Representatives, Baucus released various tax reform discussion drafts tackling international tax rules, tax administration, cost recovery and tax accounting, and energy policy.

New chairman, new direction?

In remarks made to The Associated Press last week, Wyden said his priority as SFC chairman will be to overhaul what he called “this dysfunctional, rotten mess of a tax system”.

“The last time there was a big tax reform effort like this it created six million new jobs,” said Wyden.

So we can be sure that tax reform will remain a focal point for the Wyden-led committee, but is the incoming chairman likely to alter the committee’s direction when it comes to executing reform?

He co-authored the Wyden-Coats tax simplification plan (The Bipartisan Tax Fairness and Simplification Plan) in 2011, advocating a corporate tax rate of 24% and the elimination of deferral of taxes on active foreign earnings as well as the repeal of the domestic manufacturing deduction and other incentives aimed largely at the oil and gas industry.

Michael DeHoff, of Deloitte’s National Tax Policy Group, points out that one area in which Wyden has different ideas from the departing Baucus is when it comes to dealing with extenders.

Baucus felt that extenders – temporary tax provisions that expire every one or two years unless they are extended – should be examined separately and removed or made permanent within the framework of comprehensive tax reform.

Wyden, while acknowledging this as the ideal process, believes the slow pace of tax reform makes it necessary to look at certain extenders now. This stance was reiterated to reporters last week when Wyden said: “If you don’t take steps to address [extenders] it could be very damaging to some key parts of our economy. I do feel it is important to make them a bridge to comprehensive tax reform”.

Most notable among the extenders that expired at the end of last year are the research and experimentation credit and the subpart F exemption for active financing income and look-through treatment for payments between related controlled foreign corporations.

Wyden now wants to push through a Bill from Democrat Harry Reid, Senate Majority Leader, to extend 50 tax breaks including those for R&D and renewable energy.

However, with Camp sharing Baucus’ view that action on extenders should form part of a wider tax code overhaul, Wyden may not get his wish of dealing with those tax breaks separately from a wider overhaul.

But the co-author of the Wyden-Coats tax simplification plan is keenly aware that when it comes to US tax reform, which hasn’t been achieved since 1986, nothing – bar the need for compromise – is certain.

“Anybody who thinks that their tax reform proposal is the gospel sent down from the heavens and is hereby going to be enacted into law doesn’t know anything about tax reform,” said Wyden.

Despite a lack of progress in passing tax reform legislation last year, Ray Beeman, House Ways and Means Committee majority tax counsel and special adviser for tax reform, says there is optimism for 2014.

“Even beyond the Ways and Means Committee, there’s strong interest in doing tax reform this year, if possible, so I do think we have some wind at our backs,” said Beeman.

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