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Baucus and Hatch Solicit Secret Tax Earmarks

A few weeks ago, Senators Baucus and Hatch, the Chairman and Ranking Member of the Senate Finance Committee, the Senate’s tax writing committee, announced that they are seeking suggestions for reforming the federal tax code.   As nearly everyone agrees, the Internal Revenue Code is too complicated and too costly to comply with. While the goal of tax reform and simplification is a laudable one, the details of the Baucus/Hatch “blank slate” proposal raise serious concerns.   The confidentiality provisions in particular violate the Senate earmark rule, the Republican Conference’s earmarks moratorium, and the best practices of open government.   

Senators Baucus and Hatch conceded that all tax expenditures were not created equal and they wrote “to ask [their colleagues] to formally submit legislative language or detailed proposals for what tax expenditures meet these tests and should be included in a reformed tax code, as well as other provisions that should be added, repealed or reformed as part of tax reform.”  They noted that those proposals which were bipartisan would be looked upon more favorably.  

While on its surface this looks like a call to Senators, what it really is is a call to special interests to muster support for their favorite tax earmark.   Asking Senators and their lobbyist friends to call in their favorite tax earmark is bad enough but the way the Senators are going about it is especially pernicious.   

Before going into why, it’s worth taking a moment to review the Rules of the United States Senate - Rule XLIV in particular.   Rule 44 states in part:

1. (a) It shall not be in order to vote on a motion to proceed to consider a bill or joint resolution reported by any committee unless the chairman of the committee of jurisdiction or the Majority Leader or his or her designee certifies-
(1) that each congressionally directed spending item, limited tax benefit, and limited tariff benefit, if any, in the bill or joint resolution, or in the committee report accompanying the bill or joint resolution, has been identified through lists, charts, or other similar means including the name of each Senator who submitted a request to the committee for each item so identified; and  
(2) that the information in clause (1) has been available on a publicly accessible congressional website in a searchable format at least 48 hours before such vote.
5. For the purpose of this rule-
(b) the term ``limited tax benefit'' means-
(1) any revenue provision that-
(A) provides a Federal tax deduction, credit, exclusion, or preference to a particular beneficiary or limited group of beneficiaries under the Internal Revenue Code of 1986; and
(B) contains eligibility criteria that are not uniform in application with respect to potential beneficiaries of such provision;

For tax matters the disclosure provisions apply to tax items that affect roughly ten or fewer recipients.  (click here for the details of how that’s defined and some interesting sport analogies.)

Glossing over the fact that this is a pretty weak earmark prohibition (earmarks should just be banned outright) it does at least add a modicum of transparency to the process.

Senators Baucus and Hatch though have gone to great pains though to hide their process behind the closed doors of the Senate Finance Committee (a rarified club within the rarefied club of the United States Senate).   In a recent memo to Tax Legislative Assistants they outlined the super secret way they would protect the tax earmark provisions requested by their colleagues.   They instructed their colleagues to stamp their request with this special language to ensure that they wouldn’t have to own up to their earmark requests:

COMMITTEE CONFIDENTIAL. NOT FOR DISTRIBUTION. DO NOT COPY.
These materials may not be released to the public from the National Archives or by the Finance Committee prior to December 31, 2064.

The United States Government generally declassifies national security documents after 25 years.  The Senate Finance Committee is looking to keep Senators earmark requests secret two decades longer than the CIA kept documents from the Cuban Missile Crisis secret.   We’ll even probably know the name of the sailor who shot bin Laden before Senate Finance releases these requests.

Not only will these documents not be released, they will literally be kept under lock and key where only ten specific staff members in the United States Senate will be allowed to review them (in addition to presumably Senators Baucus and Hatch.)   While this is clearly an absurd level of tradecraft for a tax bill, why is it pernicious?   

This is precisely the kind of process Senators use when they want to sneak suspect language past their colleagues and the public.   Often times tax expenditures are complex and make highly technical changes to federal tax law.  It often takes complicated and detailed review to sort out their impact.  Baucus and Hatch are proposing a process when the first time someone gets a wiff of the language will be shortly before it is being considered by the committee.   Springing these provisions on the public at the last minute when the committee begins to mark-up the bill short circuits that review process (likely intentionally) and increases the possibility of harmful provisions finding their way into the tax law.  

It’s also the kind of lawmaking that will allow Senators to trade tax provisions for campaign contributions or other favors without the public ever finding out.  For especially touchy tax earmarks, Senators Baucus and Hatch, neither of whom will ever face voters again, could take ownership of the problematic requests submitted by their colleagues so as to shield them public attention and attribution.   Who would ever know?? The original requests are locked in a safe and won’t be released until even the youngest members of the Senate are dead.  

The proposal also grants greater access to information to unelected staff than it does to Senators.  Ten committee staffers will be entrusted to review all the documents and call balls and strikes.   While the staff working for Senate Finance are good and decent people, they do not reflect the views and concerns of all Senators.   It’s unreasonable to expect a small gaggle of staff to be able to review the provisions with the same eyes as the staff of Senator Sanders or Senator Lee might.   

Finally, this process makes it impossible to hold Senators accountable for provisions that never make it out of the safe in the Senate Finance Committee.  While the public might be able to suss out that their Senator was the source of a provision in the introduced bill, what about the provisions we do not see.  The public should know that their Senator is advocating with his colleagues for special interest tax provisions.  In fact this is precisely the policy the Senate Appropriations Committee insists upon (mark this date as the first time I ever praised the Appropriations Committee.)     

If a Senator wants to advocate for certain tax expenditures, he should do it in the light of day in front of his colleagues and constituents.  

Senators should reject the process that Senators Baucus and Hatch have outlined.  It embraces the worst of Washington law making and will further erode public confidence in the Senate.   This process only serves to show why we need a truly flat tax code without very very few tax expenditures in it - if any at all.   When we trust certain Senators to call balls and strikes on what tax preferences are acceptable, we’re guaranteed to get this kind of secrecy and horse-trading, whether it’s outlined in a formal memo or not.  

P.S. If you have some ideas on how to improve the Internal Revenue Code, I’d encourage you to email them to the Senate Finance Committee at: ImproveTheCode@finance.senate.gov , but don’t ask them to keep your ideas under lock and key.