An exploding federal debt and continued growth of tax complexity have forced tax reform into the limelight once again. In December 2010, a deficit reduction commission offered a variety of models for both simplifying the tax code and increasing the amount of revenue it generates. In 2011, a so-called "Super Committee" failed in its mission to craft a deficit reduction package, in part because Republicans refused to consider new revenues and in part because Democrats put forth no significant entitlement reform proposals. The stalemate continued through 2012.
The enactment of the American Taxpayer Relief Act of 2013 on Jan. 2, 2013 further hardened partisan positions, with most Democrats (including President Obama) insisting that tax reform should produce more revenue from higher-income taxpayers, and most Republicans insisting that all additional revenue from broadening the tax base in tax reform must be used to lower tax rates. The combined effects of the large and growing budget deficit, the need to increase the US credit limit (aka the debt ceiling), and the fragile economy have lined up to force a major political debate about the relative mix of spending and revenue.
Throughout 2011 and 2012, and continuing into 2013, Congress’ tax-writing committees (Senate Finance Committee and House Ways and Means Committee) have held hearings about broad issues that must be considered as part of tax reform.
In early 2013, the Ways and Means Committee established bipartisan “working groups” to examine various areas of the tax law to better understand the current rules and various existing proposals for reform. One of these working groups focused on real estate taxation.
The Finance Committee in the spring of 2013 also embarked on similar studies of the current tax law and various proposals for reform, but kept its meetings private and did not solicit stakeholder input, as did the Ways and Means Committee. However, the Finance Committee released “white papers” on reform options to the public once each topic was discussed.
In these stages of development, the tax reform discussion has focused on reducing the tax rates and broadening the tax base, but no details have been provided that would suggest which deductions and tax credits would be reduced or eliminated in order to "pay for" deep rate cuts. NAR is particularly concerned about changes to the mortgage interest deduction (MID), property tax deduction, and the $250,000/$500,000 exclusion of gain on the sale of a home.