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Expectations of tax shakeup low as first vote nears

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Tough tradeoffs, political infighting and worries about the deficit are obstacles to a Republican-led push to rewrite the federal tax code, experts watching the national debate take shape agreed Wednesday as they raised doubts about a deal getting done anytime soon.

The state and national tax policy experts offered the pessimistic appraisal during a panel discussion convened by the Minnesota Center for Fiscal Excellence, a nonpartisan research group funded by business organizations.

The U.S. Senate is set to vote next week on a budget framework that will either pave the way or throw up more roadblocks to an eventual overhaul. 

"I'm going to be the Negative Nancy up here. I didn't think that tax reform was going to happen this year at the beginning of the year and I still don't think it's going to happen now," said Max Behlke, director of budget and tax initiatives in the Washington office of the National Conference of State Legislatures. 

Doug Lindholm, the president of the Council of State Taxation, also cautioned the audience of state lawmakers, accountants and others from the business world about banking on a swift and sweeping resolution.

"All I can say is be careful about paying attention to the promises," he said. "A lot of them are merely aspirational about tax reform."

Details are still scarce about how all the pieces would fit together. 

President Trump's administration has broadly discussed slicing the corporate tax rate and making it more attractive for American companies with money parked overseas to invest it back in U.S. operations. 

On the personal tax front, there would be some tradeoffs — fewer brackets with lower rates along with a bigger standard deduction. But some other popular deductions would be eliminated. In Minnesota, as many as one-third of taxpayers could be stung if they lose the ability to deduct state and local taxes on their federal tax forms. 

Lindholm said it all contributes to the political difficulty of getting something substantial done.

"The bipartisan reform that we're all looking for, somebody's ox will get gored," Lindholm said. "And somebody is going to have to stand up and make tough choices. And the only way that the members will do that is if somebody is willing to say 'I've got your back.'" 

The last major rewrite of the federal code came in 1986 when Ronald Reagan was president. 

"He stood up and said 'make that vote,'" Lindholm said. "'Blame it on me. I'm the one that wants tax reform. I will give you the cover.' That is not happening today."

Several panelists raised Trump's tense relationship with Congress, especially senators from his own party. That, along with almost daily distractions, are making it hard for the president to drive home his tax-cut message with the public. Deficit hawks in the GOP also are being more vocal about their concerns.

Still, Minnesota Revenue Commissioner Cynthia Bauerly, who was part of the discussion, said some people aren't waiting for concrete changes to alter their tax planning.

"What we would normally expected for capital gains are being held in hopes that capital gains are going down at the federal level," she said. "A lot of people who might have normally moved some of that income around, maybe sold, are holding that for the potential of a future lower rate."

She said it's affecting state revenue streams, but didn't quantify that. Periodic tax collection reports do indicate that individual tax payments have lagged projections for much of the year, although there could be multiple explanations for the dip.

Next week's vote is on a budget resolution that assumes $1.5 trillion would be added to the deficit over the next decade to pay for the tax cut; Trump and his allies say stronger economic growth would help bring the deficit figure down.

For practical purposes, the vote matters because it would also allow majority Republicans to push that through even if all Democrats line up against it. If the resolution fails, Republicans would have to rely on Democratic help to clear future procedural hurdles.

Joe Crosby, a noted national consultant for state and local governments, said he can see possible path to a bipartisan agreement.

"There still is strong interest in corporate reform," Crosby, of MultiState Associates, said. "And I see that continuing to pull along corporate tax reform because politically they have to do something."

Behlke from NSCL said there's a stronger likelihood that Congress resorts to something smaller, maybe just rate cuts, to let Republicans declare victory. That also goes for Trump, he said, whose tax promises have been characteristically lofty.

"If anything gets signed by the president — I don't care what it is — it will be the biggest and best tax reform package that ever happened," joked Behlke, "Believe me."