House to vote on GOP plan to simplify US tax code, minus the details

The House on Wednesday approved a one-year extension of all the Bush tax cuts, a bridge intended to give Congress time to do what both parties say is needed in 2013: wide-ranging tax reform.

To get to tax reform, Congress will have to overcome its fractious history on tax matters. The House vote follows the Senate vote to extend the Bush-era tax cuts only for households with income up to $250,000. Nineteen Democrats broke ranks to vote with Republicans on the mainly party-line House vote. Party leaders of both chambers have no interest in heading to a conference committee to hash out the differences in the fortnight of working days left before the November election.

And back in 2011, legislators put off that heavy lift until the greener pastures of 2012 in hopes of a less partisan atmosphere with more time for negotiation. Needless to say, those hopes have been dashed: Not only are no negotiations on tax reform under way in the House, there aren't even informal talks, Rep. Sander Levin of Michigan, the top Democrat on the tax-writing Ways and Means Committee, told CSPAN's "Newsmakers" last week.

Despite a lost year of no bipartisan negotiation on reworking the US tax code, the House GOP will take its first step toward a new attempt at tax reform Thursday. Just before heading out for Congress’s August break, the House will almost certainly pass a proposal from Ways and Means Chairman Dave Camp (R) of Michigan that lays out the GOP’s principles for revising the tax code.

Central to the plan are lower marginal tax rates and fewer tax brackets, as well as the elimination of some tax loopholes and tax deductions in a bid to broaden the tax base.

But getting to tax reform – a goal broadly sought by both parties – remains a difficult trade-off between competing aims of economic growth, social goals, and fairness.

“My example for why [tax reform is] hard is next year will be the 100th anniversary of the income tax and we have had less than a handful of comprehensive tax reform” proposals become law during that time, said Douglas Holtz-Eakin, chief economic policy adviser to Sen. John McCain during his 2008 presidential campaign and a former Congressional Budget Office director. “As a going-in proposition, tax reform is very, very difficult.”

Representative Camp’s legislation lays down the Republican approach to tax reform in the House – and demonstrates the tension between reducing taxes to the level lawmakers seek and having to gore many politically sensitive oxen along the way.

Camp’s proposal holds that tax reform should reduce rates by lowering the number of tax carve-outs for individuals and corporations. Individual income-tax rates would be condensed from six tax brackets to two, at 25 percent and 15 percent, while corporate taxes would fall to no more than 25 percent.

The reform would eliminate the Alternative Minimum Tax (AMT), an ill-conceived tax item that Congress patches every year to avoid snaring millions of middle-class Americans with a levy that aimed to prevent the richest Americans from paying too little in taxes. It would, finally, change the United States to a territorial taxation system, a policy taxing corporate profits earned in the US but not overseas.

Where things get tricky is wedding those hard figures to the bill’s qualitative goals.

Camp’s bill calls for a tax code that is simple, meaning fewer costs to taxpayers for compliance. The resulting code should reduce the burden on married couples and families, and make it easier for Americans to save. And it should maintain its progressive character so as not to “overburden any one group.”

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