The U.S. tax code is messy, complicated and full of loopholes. And if you're searching for the most incomprehensible, technically dense part of that code, international tax law would be a good place to start.
That's why Senate Finance Committee Chairman Max Baucus, D-Mont., released an "International Tax Reform Discussion Draft" on Tuesday that envisions a revenue-neutral reshaping of the tax code. It's a detailed proposal, complete with legislative language.
The goal, according to legislative aides, is to eliminate overseas tax havens, make foreign companies operating abroad more competitive, give them more flexibility in doing business domestically and overseas, encourage investment overseas, and bring home some of that big pile of cash that U.S. corporations are thought to have parked overseas.
The amount of that big pile is thought to be about $2 trillion.
Companies have been agitating for a "tax repatriation holiday" to bring that money back home. While the Baucus proposal doesn't give them that, it would require U.S. corporations to pay a one-time tax at a reduced rate on all their historical earnings currently parked overseas. The discussion draft contemplates a 20 percent tax rate, paid over eight years — which would produce a one-time windfall for federal coffers (one estimate is $200 billion) that could be used to pay down the debt, replace the automatic spending cuts of the sequester or other things.
Still, it's likely to be a disappointment for those who had hoped for another voluntary repatriation holiday; this would be mandatory and would cover all stockpiled cash.
It's far from the most controversial change that could come as part of a tax overhaul. Aides say they're releasing it because they want feedback from the business community and others.
The discussion draft comes as tax overhaul talks appear stalled in the House of Representatives, and as a budget conference committee contemplates a federal spending plan. Tax changes could be part of that plan — or not. The conference committee could also fail to come up with anything at all. For his part, Baucus is moving ahead and will release other discussion drafts later this week.
"There will be many, many stages, many, many steps as we go down the tax reform road," Baucus said in an interview. "This is the first of many steps, but we have to take a first step to begin, and that's what I'm doing here."
It's an incremental step and, depending on how you count, far from the first in what has been a long process. House Republicans have released their own series of discussion drafts. Baucus and his House colleague, Rep. Dave Camp, R-Mich., who chairs the Ways and Means Committee, have traveled around the country seeking feedback and trying to promote tax reform. According to staff, Baucus' Senate Finance Committee has also held more than 30 hearings on the topic since 2010.
Most observers think it is a political impossibility in the current environment, where Republicans insist that no new revenue be raised by any tax reform, and Democrats insist that tax reform be used to raise money to reduce the deficit and invest in infrastructure, among other things. Baucus insists "tax reform has more political potency" than a lot of people believe.