The email blasting Rep. Dave Camp’s tax plan as “disastrous” arrived two days before a pivotal meeting between House Republican leaders and their chief tax writer.
The subject line: “Republican tax plan threatens conservative talk radio and media localism.” It came from Lee Spieckerman, a Dallas-based Fox News commentator and media entrepreneur, who urged party leaders to stop House Ways and Means Committee Chairman Camp’s “kooky” tax “scheme.” The email, obtained by POLITICO, had been forwarded to Rush Limbaugh, Sean Hannity and other conservative talkers.
It was the latest sign to Republican leaders that the timing is not right for tax reform.
House Speaker John Boehner (R-Ohio) and others pulled the plug
last month on Camp’s long-standing vow to take up a tax overhaul bill this year, putting his three-year quest in limbo. The reversal shows how support for tax reform, even among Republicans, is broad but not deep. They routinely say they want to overhaul the Tax Code, but when the Michigan Republican pushed to take the first big step — putting out a bill — party leaders blinked.
The deferral of tax reform, at least for the foreseeable future, also reflects the enormous task Camp set for himself in pledging to overhaul the 70,000-plus-page Tax Code, which has not been revamped since 1986. No matter how small, every change would elicit cross-pressure on lawmakers, and any accomplishment would be a major feat even in a climate of bipartisan comity.
The back story on why Republicans held back Camp was compiled from interviews with dozens of lawmakers, aides and lobbyists. They cite a host of reasons, from jitters among interest groups to Camp’s failure to win support from rank-and-file lawmakers, but they all boil down to the same thing: Republicans are not ready.
Republicans say there will still be a markup — though no one can say when.
“I like the concept of getting tax reform done — the timing I leave to everyone else,” Rep. Kevin McCarthy, the third-ranking Republican, said in the days after the meeting.
“I’m not going to make a prediction,” Camp, who declined to be interviewed for this story, said at the time.
His spokeswoman, Michelle Dimarob, said, “the leadership has been really supportive about partnering together to make sure that noncommittee members have all the resources and tools they need.”
It was Camp’s bad luck to have been planning his markup just as Obamacare was blowing up. For Republicans who had just taken a beating over the government shutdown, the endless stories of Obamacare gone wrong were political manna.
Even some members of Camp’s panel saw no reason to give Democrats the chance to change the subject by introducing what would surely be a wildly controversial tax bill.
“We don’t want to get in front of that train,” said one House Republican lawmaker, who requested anonymity. “That’s got to run its course.”
The gist of Camp’s tax plan would be slashing rates while simplifying the code — which would entail curbing lucrative and popular tax breaks.
Camp, who had persevered through cancer treatments and was now facing term limits on his chairmanship, argued the Obamacare stories would not last forever. He said Republicans couldn’t be against everything and came armed with polling that showed tax reform could be a winning issue.
In the days before the critical Boehner meeting, Camp brought in former Secretary of State James Baker, who had also been President Ronald Reagan’s chief of staff, to rally committee Republicans with war stories about the last major tax overhaul. Baker emphasized presidential leadership, recalling that Reagan helped clear a path for Congress. For some lawmakers that only underscored what they did not have: They and President Barack Obama did not even agree on the ground rules of any reform.
At one point, Baker went off script and suggested the time may not be ideal with Obamacare cratering, according to one lawmaker who was there.
Baker told lawmakers it would be a “waste of time” and “impossible” to attempt tax reform without the support of the president, said Baker spokesman John Williams. He said Baker also agreed with a lawmaker’s suggestion that tackling the issue now would only distract from Obamacare.
Beyond that, House leaders were concerned Camp’s plan would hand Democrats fodder in a separate budget fight. They wanted to ax tax breaks to pay for repealing sequestration, and if Camp put out his plan, Democrats would surely cherry-pick the parts they liked, plug them into a bill rescinding Pentagon cuts and dare Republicans to oppose it.
As one manufacturing lobbyist put it: Camp’s plan would become a “list of GOP-sponsored revenue increases.”
And as Baker’s talk underscored, they didn’t have the support of the White House. Their long-running dispute with Democrats over tax increases had scuttled budget efforts in recent years: the 2011 Obama-Boehner budget talks, the Biden group, the Supercommittee, Simpson-Bowles.
There were signs all along the GOP brass were skeptical of tax reform.
Despite Boehner earlier this year reserving the symbolically important H.R. 1 for Camp’s plan, leadership rarely talked up the idea beyond the usual platitudes. This hardly prepared their caucus, the public or, for that matter, conservative commentators for the unpopular choices they would face.
Boehner spokesman Michael Steel said, “the speaker and our entire House Republican team, remain committed to fundamental tax reform to lower rates, simplify the code and help create jobs.”
But the worries of that Dallas commentator, who feared losing a tax break for advertising costs, were just a hint of the interest group ire Republicans would have to battle.
“Unbelievably, a Republican — Camp — is now pushing a tax law change that would do more to impair talk radio than anything the Democrats could have ever dreamed of,” the email Spieckerman sent to leadership read.
He later told POLITICO the Camp plan was self-defeating since much of talk radio leans right: “It’s certainly the only media platform that’s pretty consistently aligned with conservatives and Republicans out there, other than the Fox News Channel, so to do anything that impairs that would be just lunacy.”
He was not the only one worried about losing breaks.
Camp had already shown he was not going to simply do interest groups’ bidding. His proposed tax rules for the financial industry set off alarm bells in New York earlier in the year. “The most feared man on Wall Street,” the New York Post blared, above a picture of the mild-mannered Camp. “He’s become Wall Street’s public enemy No. 1.”
What’s more, Republicans were committed to not raising the deficit, which meant they could not help one group without hurting another.
Lobbyists fretted they were about to become tax reform’s losers. Wholesalers worried about losing an accounting method that saves them big on taxes. The American Iron and Steel Institute was concerned about industry’s ability to write off equipment expenses.
“We are very concerned, however, that many of the tax reform proposals presently under consideration would raise the effective tax rate on U.S. manufacturers,” a letter from the iron and steel group to leadership in the days before the Boehner-Camp meeting said.
When one member of the Rate Coalition, major businesses publicly backing reform, couldn’t get assurances their favorite breaks would be spared, they bypassed Camp, going directly to Boehner to urge him to put off reform, according to a leadership aide.
Majority Leader Eric Cantor was widely believed to be particularly skeptical, and reform backers noticed when he left the issue off a September memo outlining House Republicans’ agenda for the rest of the year.
Tax reform was passed over again in October, in the battle over the debt limit. Reform advocates hoped Republicans would use it to force action, but when Republicans winnowed their list of demands, they settled on a delay in Obamacare. Tax reform was too divisive, lawmakers said.
Rewriting the entire Tax Code was always going to be controversial, but Camp and House Budget Committee Chairman Paul Ryan did not make it any easier on themselves.
They had promised at the outset to slash the top individual and corporate rates to 25 percent. It was a dramatic cut that could rally Republicans — even Reagan didn’t get rates that low. The top corporate rate is now 35 percent, with the top individual rate nearing 40 percent.
But lawmakers had no idea how they’d make the math work. It would be a mammoth task, forcing them to dig into big, popular middle-class tax breaks.
“There clearly is a difference between what members from both sides of the aisle say about tax reform and what they do,” said Clint Stretch, a former counsel at the congressional Joint Committee on Taxation now at the nonpartisan Tax Analysts. “What they’ve done is really avoided the hard-choice conversation.”
Exactly how Camp intended to make good on his pledges was a closely guarded secret. Aside from committee Republicans and select staffers, few knew the details. Very little leaked out, with even top tax lobbyists saying they could only surmise what Camp was planning. That secrecy allowed lawmakers to consider an array of controversial ideas, without having to worry about what their constituents thought, let alone Democrats or the special interest groups.
But it came with a cost. It was hard for Camp to proselytize when he wouldn’t say exactly what he was selling. Even aides to Republican members of his committee said they didn’t know what was going on. They were excluded from his closed-door meetings with their bosses, as what one aide called a “cone of silence” descended over deliberations.
They worried what their bosses might be agreeing to and whether they even fully understood the options. Many had been on the committee for only a few years.
Republicans outside the committee had little inkling of what Camp had in store. They could easily be blamed by Democrats for whatever he proposed, even if it never reached the House floor. More than a third of the caucus had been in office for less than three years, and many didn’t know the first thing about the trade-offs that would have to come. What would they say when their local factory owner complained about losing depreciation allowances?
A substantial number of Republicans didn’t even want to reform the income tax — they wanted to end it. About a third of the caucus had signed onto a bill promising a “fair tax” to repeal the income tax system, abolish the IRS and replace it with a national sales tax run by the states.
So at a Nov. 14 meeting in Boehner’s office, where party leaders met with Camp and other top committee Republicans to decide how to proceed, they urged him to focus on building support within their caucus and among business.
“They basically said, ‘If you can prove to us that this can pass, then we’ll work with you,’” said one lawmaker. “They’re having a difficult time marshaling votes to pass anything, and obviously this is something that’s big, so they’re very gun-shy.”
The committee had been trying to educate the rest of the caucus, but the conversations often didn’t move past the 30,000-foot level. There were questions about why the corporate income tax was even necessary and why they couldn’t simply slash rates. There was far more work to be done.
But how do you educate 200 lawmakers already distracted by dozens of other issues on the taxation of foreign subsidiaries of U.S. corporations?
“Everyone has a different level of understanding,” said Ways and Means member Tom Reed (R-N.Y.). It’s not surprising there would be an “educational curve for folks who haven’t been dealing with this like us on a day-to-day basis.”
“It’s still a work in progress,” he said.
It’s hard to see how the timing will get any better next year. Republican primaries will be under way by the spring, and for many House Republicans, that’s the only election to worry about. After that, there’s the midterms, where Republicans hope to retake the Senate. The 2016 presidential race will begin not long thereafter.
“It’s going to be exceedingly difficult,”said former Republican Ways and Means Committee Chairman Bill Archer. “Timing is a problem for him.”
But when the timing is finally right, H.R. 1 will still be waiting.
© 2013 POLITICO LLC