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Federal Tax Reform: Everybody Wants It, but Agreement Unlikely

At the end of last year, scores of tax breaks expired affecting both businesses and individuals. They range from a tax break for teachers who buy school supplies out of their own pockets to write-offs for business equipment purchases, and a special tax break for Puerto Rican rum production. The members of Maine's congressional delegation want some of the tax breaks extended, but question the likelihood, given the politically-charged atmosphere on Capitol Hill.

Maine Sen. Angus King, an independent, says the complex tax battles underway in Washington could be summed up pretty simply: "Everybody is for tax reform but nobody is for particular changes that constitute tax reform. One man's loophole is another man's lifeline,'" he says.

The list of tax breaks that expired at the first of the year mostly affects businesses but some do affect individuals - such as the deduction for some of the cost of higher education and for donating large amounts to charities. The House Ways and Means Committee has passed one version of the legislation, the Senate Finance Committee another, and there are dozens of amendments being discussed.

Republican Sen. Susan Collins is doubtful that comprehensive tax reform can be addressed this year, though she believes some of the tax breaks that expired will be renewed. She hopes the package will be in effect for more than a year because uncertainty over taxes is hurting job growth.

"The fact that they were allowed to expire creates all this uncertainty," she says, "and when I talk to employers and ask them why they are not hiring, that comes up over and over again."

In the House, some tax breaks were approved at the committee level last week and the full House has approved a research and development tax credit measure that would make it a permanent break at a cost of $156 billion over 10 years.

Congresswoman Chellie Pingree, a Democrat, agrees that comprehensive tax reform is needed, but she expects both the House and Senate will go at the issue of taxes on a piecemeal basis.

"You need a certain amount of leadership to work through that many difficult issues," Pingree says. "They are still working on it. They have proposals on the table. You are right, we have a lot of tax extenders that mean a lot for economic development and are big challenges in a lot of ways. I am keeping my fingers crossed."

Congressman Mike Michaud, a Democrat, says while comprehensive tax reform is essential, it will not happen this year. He says the battles will be over continuing tax breaks and over the changes being proposed in committee affecting the way taxes are collected.

"You are going to get one group or another upset," he says. "I know they are looking at how attorneys are paying for their taxes. Once you bill a client, that is when you pay the taxes, not when you get the money."

Michaud says that is sure to generate controversy, as are many provisions under consideration in the tax writing committees in both the House and Senate. He says the internal politics of the Republican controlled House will be crucial for the pawssage of any tax measures.

"The speaker does have a problem with his own caucus," Michaud says. "And if the speaker is willing to do what he did with some other bills to allow us to move something forward and just let the votes fall where they may, I have no doubt we can get something done."

Pingree says while much of the deadlock in Congress this year has been the result of election year politics, this is one instance where politics may help get some tax measures passed.

"The Republicans in control of the House do know that voters are going to the polls and judge them to a certain extent on whether do they ever do anything," she says. "This has been, unfortunately, quite a do nothing Congress for an awful long time. And I think they do want to show that they can work, they can govern."

Collins says even if the House does pass some tax reforms they will still face Senate action, and differences between the various versions will have to be ironed out.

"A limited package extending many of those taxes, particularly those that help small businesses to create jobs or encourage business investment, those would be extended," Collins says.

King says that it may be time to take a new approach to the incredibly complex list of tax deductions and credits for both businesses and individuals. He says he has a computer program just to keep track of all the proposals.

"I think the way to do it is to limit total deductions to some percentage - 28 percent or something - and not get into the details of picking and choosing," King says.

Debate in both the House and Senate continues this month, but it may be after the fall elections before Congress takes final votes on any form of tax package.