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

This intuitively makes sense to many in Congress – lower taxes are good and the goals sound laudable.

The problem, as the nonpartisan Tax Policy Center wrote in a study released in early July, is that reconciling these two goals is not an easy feat.

“We conclude that paying for lower rates would require substantial reductions in broadly used and popular preferences,” according to the report. “In addition, requiring that changes maintain the current progressivity of the federal income tax would make it much harder to find a politically acceptable mix of preferences to curtail.”

As an illustration, the Tax Policy Center projects that under a less ambitious plan that Camp’s – reducing all current rates by 20 percent, leaving a top income-tax bracket of 28 percent – the tax code would need to raise some $320 billion more than current tax policy in 2015. There will be some $1.1 trillion in estimated tax expenditures that year – that is, tax breaks – meaning about 30 percent of them would need to be wiped out.

Would Congress be willing to dip into some $327 billion representing lower tax rates for investment income (sacrosanct to Republicans) and pretax treatment for contribution to retirement accounts, among other similar provisions? That would hurt the goal of helping families to save.

What about $122 billion in tax breaks that go to mostly low-income families, such as the child tax credit, the low-income tax credit, and partial exclusion of Social Security income? Cuts there don’t keep taxes on their same progressive plane.

There are “other” tax preferences amounting to $182 billion. These include excluding tax consideration of combat pay to soldiers, excluding capital gains on death, and cash benefits for low-income families. These other tax preferences have been targeted by several deficit-reducing commissions.

That leaves a passel of middle-class favorites like tax breaks for health insurance, mortgage interest, charitable contributions, and exclusions for state and local taxes – amounting to the largest chunk of tax breaks, at $462 billion a year. What portion of those would tax reformers be willing to reduce or eliminate?

In the case of GOP presidential nominee Mitt Romney’s tax plan, in fact, achieving tax fairness may be impossible, according to an analysis conducted by the Tax Policy Center  The Center's analysis of Governor Romney's very general tax plan estimates that achieving his tax goals would transfer $86 billion in tax burden from Americans making over $200,000 per year to those making under that same amount.

Democrats, even those who favor revamping America’s spending and taxing priorities through a wide-ranging plan like the Simpson-Bowles debt-reduction proposal, scoff at Camp’s plan.

“The premises are unrealistic and will not accomplish the objectives [of] either reforming taxes or reducing our deficit,” said House Democratic whip Steny Hoyer (D) of Maryland on Wednesday, a proponent of a “big, bold” framework for cutting the nation’s debt, including reducing spending, raising taxes, and reforming entitlement programs like Medicare and Social Security.

In addition, Democrats chide Camp for a lack of specificity.

“He’s never indicated how you would get there” on lower tax rates, said Congressman Levin on C-SPAN last week. “There haven’t been useful discussion because, essentially, they say 25 percent and there isn’t a clue as to how they get there.”

The same problem bedevils Democrats such as Hoyer and Levin, who embrace the concept of tax reform: Where are you going to cut?

“Simply finding a segment of society that you can raise taxes on in order to fill a stop-gap measure is just not enough,” Camp told reporters Wednesday. “We need comprehensive reform.”

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