All told, the U.S. Treasury loses about $1.1 trillion annually to more than 200 credits, deductions and other tax breaks. Politicians in both parties — including President Obama and Mitt Romney, the Republican who is likely to challenge his reelection bid — have called for recapturing some of that cash and using it to finance lower tax rates or to reduce federal budget deficits.
Until recently, both sides have been reluctant to hint at which of the many popular perks might get the ax. That is starting to change, however, as lawmakers and policy analysts begin preparing for the prospect of overhauling the tax code as soon as next year.
On Tuesday, House Ways and Means Committee Chairman Dave Camp (R-Mich.) scheduled a hearing on “tax-favored retirement accounts” that he said was intended to begin “framing the debate” in preparation for tax reform. Aides said Camp also is planning a first-ever examination of about $30 billion worth of expired tax breaks for individuals and corporations that Congress routinely extends, an idea that is also gaining traction in the Senate.
Over the weekend, Romney dropped hints about tax reform at a private fundraiser in Florida, telling donors that he would save money by eliminating or limiting the mortgage-interest deduction for second homes for taxpayers with high incomes. He also suggested limits on deductions that millions of Americans claim for state income and property taxes.
Romney’s remarks, overheard by reporters for the Wall Street Journal and NBC News, quickly drew fire from the Obama campaign, which accused the former Massachusetts governor of harboring a secret plan to undermine the middle class.
Romney aides later said the candidate was merely throwing out ideas, not outlining a fully formed plan for tax savings.
During Tuesday’s hearing, Camp trod carefully, urging lawmakers to consider whether the complex web of retirement savings provisions could be streamlined to encourage more people to sock away money. He did not suggest trimming benefits, noting that an “overwhelming majority” of full-time workers — 66 percent — rely on the provisions.
“Today’s hearing isn’t about drawing conclusions,” Camp said, but about “making sure that as Congress approaches comprehensive tax reform that we do so well-armed with information.”
Democrats nonetheless pounced, arguing that Camp’s goal of lowering the top tax rate to 25 percent from the current 35 percent without increasing budget deficits would require lawmakers to eliminate virtually every break in the tax code. If preferences for retirement savings were preserved, they said, then something else would have to go.