Bloomberg News

Baucus Exit Slows Tax Revamp as Wyden Rises in Stature

December 20, 2013

Baucus Exit Slows Tax Revamp as Wyden Rises to Advance Plan

Senator Ron Wyden, a Democrat from Oregon, in Washington, D.C. Photographer: Joshua Roberts/Bloomberg

Senate Finance Chairman Max Baucus’s departure from Congress could doom his career goal to make the biggest changes to the U.S. tax code since 1986, with the project probably going to Oregon Democrat Ron Wyden.

Wyden, an ardent advocate of tax simplification, is in line to get the most influential position of his career, giving him a chance to shape the Internal Revenue Code along with trade and health policy.

Wyden, 64, is poised to become Finance Committee chairman next year, taking over from Baucus, who President Barack Obama announced today as his choice to be U.S. ambassador to China.

“For more than two decades Max Baucus has worked to deepen the relationship between the United States and China,” Obama said in a statement today. “The economic agreements he helped forge have created millions of American jobs and added billions of dollars to our economy, and he’s perfectly suited to build on that progress in his new role.”

Wyden’s anticipated rise will mean a tougher if not impossible path to passing major tax changes in 2014, because Baucus’s departure will end momentum for an effort that’s already been stalled by partisan divides over raising revenue.

Doesn’t ‘Help’

“It does not help,” Senator Tom Carper, a Delaware Democrat and Finance Committee member, said yesterday on Bloomberg Television. “You need leadership and it is so hard to get anything done on a good day in Washington.”

Baucus, a 72-year-old from Montana, announced this year that he wouldn’t seek re-election in 2014. At the time, he said being liberated from campaigning would let him focus on the tax system.

He traveled across the country promoting tax-code changes with his House Republican counterpart, Ways and Means Committee Chairman Dave Camp of Michigan, and released discussion drafts on four areas of tax policy. The most recent was unveiled hours before news of his probable departure from Congress.

The leadership switch will make lawmakers more intent on the retroactive extension of 55 tax breaks scheduled to lapse Dec. 31, including the research and development tax credit and the optional deduction for state sales taxes.

Temporary Breaks

Wyden, who is now chairman of the Energy and Natural Resources Committee, said on the Senate floor yesterday that the House was “taking its foot off the gas” on major tax changes, making it more important for the temporary breaks to be extended, particularly those for renewable energy.

“The American people should not be left hanging,” he said.

Wyden is best known on tax policy for a 2010 plan to lower rates, limit corporate deductions for interest and make U.S. companies pay taxes immediately on their foreign income. To advance such a plan, he’ll have to deal with corporations and individuals opposed to losing long-held breaks.

“Individual tax reform sounds great on paper, and when you look at the tax expenditures about 85 percent of them are not so-called loopholes but broad based -- health care benefits, retirement benefits, charitable deductions,” said Senator Charles Schumer, a New York Democrat on the Finance Committee. “It’s easier to do corporate reform.”

Wyden’s elevation isn’t certain and must await Baucus’s confirmation to the China post, along with Senate Democrats’ official decisions on the panel’s leadership.

Jay Rockefeller, a West Virginia Democrat and the Senate Commerce Committee chairman, has more seniority than Wyden on Finance, though he, too, is retiring at the end of 2014. Schumer, the No. 3 Democrat in the Senate, follows Wyden in panel seniority and said he won’t attempt to get in Wyden’s way.

Tax Simplification

In the long run, Wyden would be able to promote his own tax policy: Focus on simplification with a heavy dose of bipartisanship.

“An overarching theme of Wyden’s view of the world has to do with individual choice,” said Russ Sullivan, the former Democratic staff director for the Finance Committee under Baucus. “He has been very pro-technology and is the lead guy on the Internet tax moratorium.”

Unlike Baucus, Wyden has supported repealing an excise tax on medical devices opposed by companies such as Medtronic Inc. As representatives of states without sales taxes, Wyden and Baucus worked together -- and failed -- to stop the Senate from passing a bill that would let states impose their sales taxes on purchases made from out-of-state retailers.

Term Limits

Tax policy leadership is set to change in both chambers next year. In the House, Camp must step down in 2014 under the Republicans’ six-year term limit for committee leaders. Representative Paul Ryan of Wisconsin, the party’s 2012 vice presidential nominee and Budget Committee head, has said he wants to succeed Camp as chairman.

Wyden and Ryan have worked together before, co-writing a Medicare plan.

Meanwhile, Baucus’s departure could also complicate Obama’s second-term trade agenda.

Baucus had been planning to introduce a measure in January that would put trade deals on a fast track for congressional approval, as the administration negotiates two of the largest pacts in history with Europe and nations in the Pacific region.

Wyden is seen as generally supportive of expanded free trade, while not as fierce an advocate as Baucus, said Bill Reinsch, president of the National Foreign Trade Council in Washington. He describes Baucus as a “friend and an ally” to businesses that want to boost overseas exports, while Wyden is “not in the anti-trade camp.”

Favoring Deals

Wyden voted in favor of the North American Free Trade Agreement in 1993 while serving in the U.S. House, and in the Senate he has voted in favor of free-trade deals with Africa, Central America, Colombia, Korea and Panama.

He also voted for a measure to grant President George W. Bush fast-track authority in 2002, although he has voted against a handful of more limited deals including a trade pact with Oman in 2005.

Wyden, a lawyer, entered the Senate in 1996 in a special election to replace Bob Packwood, who resigned in a sexual harassment scandal. Wyden won re-election most recently in 2010 with 57 percent of the vote. He had served for about 15 years in the U.S. House, representing the Portland area.

Wyden and his wife, Nancy, reported a 2012 net worth of at least $5.9 million on his financial disclosures and more than $14 million the year before, using a different reporting method.

She is the co-owner of the Strand bookstore in New York City. They have three children ages six and under. Ron Wyden has two children from a previous marriage.

Gray Panthers

Before coming to Congress, Wyden was co-director of the Oregon Gray Panthers, an advocacy group for elderly Americans. It’s an experience he draws on frequently in policy debates in Washington.

Unlike Baucus, Wyden lacks a deep network of former congressional aides who are now lobbying lawmakers.

His longtime chief of staff, Josh Kardon, represents clients such as Exxon Mobil Corp. (XOM:US) and the National Association of Forest Owners.

According to the Center for Responsive Politics, Wyden’s top donors were lawyers and health professionals. His contributors this year include James Breedlove, general counsel of Praxair Inc. (PX:US); Greg Geiling, a senior managing director at Blackstone Group LP (BX:US); and Zamir Rauf, chief financial officer of Calpine Corp., according to Federal Election Commission records.

Gregg, Coats

Wyden’s tax plan probably will receive added scrutiny in coming months. The proposal, first written with New Hampshire Republican Judd Gregg and then with Indiana Republican Dan Coats, would convert the exemption for municipal bond interest into a credit and end the exclusion for some fringe benefits.

The plan would reduce the top corporate rate to 24 percent from 35 percent and set individual rates at 15, 25 and 35 percent.

It also calls for maintaining the current worldwide international tax system and repealing the ability for companies to defer taxes until they repatriate foreign profits. That puts him in opposition to companies such as General Electric Co. (GE:US) and United Technologies Corp. (UTX:US) that want to lessen the tax burden on foreign income of U.S. multinationals.

“He will have an interesting interaction with the business community, at least the large business community on tax issues,” said Sullivan, now an adviser at McGuireWoods Consulting LLC in Washington.

Energy Panel

On health care, Wyden supported allowing workers who are insured through their jobs to take their employers’ contributions and enter exchanges created in the 2010 Patient Protection and Affordable Care Act. That isn’t allowed now.

A Wyden shift to Finance would clear the way for Louisiana Democrat Mary Landrieu to take over the Energy and Natural Resources Committee, putting an advocate of increasing natural-gas exports in charge of overseeing energy policy.

Wyden has proposed a “sweet spot” policy where U.S. exports wouldn’t reduce domestic supply and cause prices to increase. Landrieu represents a state where companies are seeking approval for facilities to ship liquefied natural gas overseas.

“Landrieu will take a different approach,” said Kevin Book, a managing director at Clearview Energy Partners in Washington.

Landrieu, who is in a tough re-election race next year, received $114,450 from oil and gas industry donors, the most for any Democrat and sixth-highest among all senators, according to the Center for Responsive Politics, which tracks campaign finance.

To contact the reporter on this story: Richard Rubin in Washington at rrubin12@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net


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