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Why tax code appears to offer deficit 'super committee' rare common ground

Congress's deficit 'super committee' began its look into reform of the tax code. Despite the partisanship consuming Washington, the $1 trillion in personal and corporate tax breaks buried in the code are an appealing target for both sides.

By Staff writer / September 22, 2011

Supercommittee co-chair, Rep. Jeb Hensarling (R) of Texas begins a hearing of the Joint Select Committee on Deficit Reduction, Thursday, on Capitol Hill in Washington.

J. Scott Applewhite/AP

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Washington

Congress’s bipartisan deficit “super committee” began public discussions of the federal tax code Thursday amid doubts that its mandate to cut at least $1.2 trillion from federal deficits over the next 10 years is still attainable.

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Despite the extreme partisanship enveloping Congress around this new venture, reform of the tax code appears to offer the panel a chance to find some common ground.

The White House and GOP leaders drew further apart this week, after President Obama unveiled a deficit reduction plan that called for $1.5 trillion in tax hikes that Republicans declared to be “off the table.”

“The deficit proposals that the president put forward, I think, are a step backward,” said Speaker John Boehner of Ohio at a press briefing on Thursday. Mr. Obama’s plan, he said, would destroy jobs by raising taxes on small businesses and their capital – “the key ingredient for job creation in our country.”

Until now, the main target for deficit reduction has been cuts in domestic discretionary spending. While Republicans oppose raising taxes, Democrats oppose changes to health and retirement entitlements unless net tax hikes are also on the table.

But panel members on both sides of the partisan divide see possibilities for debt reduction in tax reform, essentially overhauling the 10,000-page US federal tax code.

For Democrats, it’s the prospect of raising revenues either by raising tax rates or cutting tax breaks. In her opening statement, Sen. Patty Murray (D) of Washington, co-chair of the panel, cited “a tax code that’s become riddled with corporate giveaways and special-interest carve-outs for the richest Americans.”

For Republicans, however, it’s the prospect of increasing revenues (not taxes) by lowering tax rates, especially the corporate tax rate. This, they say, will stimulate investment, job creation, and growth, which will in turn expand the tax base and boost revenues for the federal government.

Despite their differing approaches, both sides expect to find common ground in the $1 trillion in annual tax breaks for individuals and corporations buried in the tax code, which are referred to in Congress as “tax expenditures.” The $1 trillion in tax breaks are comparable in size to Congress’s annual discretionary spending, and reducing them could be used for cutting deficits, lowering tax rates, broadening the tax base, and, eventually, reviving the economy.

“Most Americans agree that there is something fundamentally wrong with our tax code when a small business in East Texas pays 35 percent and a large Fortune 500 company pays little or nothing,” said Rep. Jeb Hensarling (R) of Texas, the other co-chair of the panel.

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