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New Finance chairman calls the tax code a ‘rotten, dysfunctional mess'

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The new chairman of the Senate Finance Committee, Senator Ron Wyden (D-Oregon), called the U.S. tax code a “rotten, dysfunctional mess” in an interview with Bloomberg aired Sunday. He wants to renew more than 50 tax breaks that expired at the end of 2013 as his first goal as chairman.

Senator Ron Wyden assumed the chairmanship of the powerful committee when the former chairman, Max Baucus (D-MT) was confirmed as the new ambassador to China.

“My first choice would be to first go to comprehensive tax reform, rather than to have to proceed with the extenders,” Wyden said. “But the reality is, when the House leadership last November, in effect, declared that Obamacare was their primary issue, that changed the timetable. So I am not going to sacrifice important matters like research and development and innovation on the altar of perhaps some inaction on comprehensive reform.”

The term “tax extenders” refers to legislation that extends existing tax breaks and tax credits for another year, or longer, after they expire due to sunset provisions in the legislation that created them. These tax breaks are usually extended outside the normal budget process because many of these are special breaks given to specific industries or businesses, often written by lobbyists.

Renewing the tax extenders can be a “bridge” on which both Democrats and Republicans can agree. The economy and business need these to be extended while Congress tackles comprehensive tax reform, Wyden said. “It would obviously be a big lift to enact a comprehensive reform package this year, but we can make a lot of headway.” he added.

The reality is that most of the current tax code is a mish mash of special interest legislation written by lobbyists and inserted into the code by lawmakers who generally are rewarded with huge campaign contributions, trips, and other perks for themselves and their family members.

These special tax breaks have destroyed the progressivity of the tax code. The intent of the authors of original federal income tax was that it was to be progressive ¬¬— the more you make, the more you pay. Income tax rates, which have been made less progressive over the last 30 years, would still result in a progressive tax, however, the special tax breaks written into the tax code have destroyed that entirely. As a result, an individual like Mitt Romney can make $20 million a year and pay an effective tax rate of less than 14% whereas a middle income taxpayer pays double that rate.

What is worse is that many billionaires and very profitable corporations pay no income tax at all, whereas the average worker sees 20% to 30% of their paycheck go to taxes while Congress subsidizes the very rich and powerful at their expense.

The inequities in the tax code are responsible in large part for the vast and growing disparity in wealth and income in the United States ¬¬— an inequity that has put us on a glide path to become a third world economy.

When Senator Wyden renews the extenders, he is helping those companies and individuals who get these breaks, but he is also helping certain small businesses and others at the same time. They suffer when their tax breaks are cut. That is the problem with the failure of Congress to pass comprehensive reform of our entire tax code.

Wyden is correct when he says there is no way the Republican-controlled House will even bring tax reform up for a vote if he were able to get it our of the Senate, and that is unlikely also. Wyden believes he can find Republican partners to work with over the long run to bring about reform. But, there is no certainty that he will be chairman next session. Republicans are favored to take control of the Senate and keep control of the House of Representatives in November.

Big money from self-serving special interests like the Koch Brothers is flowing into Congressional races at record breaking levels. We are likely to end up with the best Congress that dark money can buy. So perhaps Wyden’s plan is the best we can hope for.

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