Rep. Dave Camp (R) of Michigan said at a Monitor breakfast Wednesday that he is going to push ahead with tax reform – even though his plan, unveiled on Feb. 26, was considered “dead on arrival” due to objections from both parties and the political risk of debating such a big issue in an election year.
“I don’t care about how comfortable it may make people or uncomfortable, I don’t think we can afford to wait. I’m willing to take on this issue,” said the chairman of the House Ways and Means Committee.
Mr. Camp’s draft plan – the first comprehensive tax reform plan in more than 25 years – simplifies the tax code while keeping it revenue neutral and preserving the progressive distribution of the tax burden. It collapses today’s seven tax brackets into two, at 10 percent and 25 percent; reduces the corporate tax rate from 35 percent to 25 percent; and adds a surtax of 10 percent for the wealthiest Americans. It pays for these changes by trimming various deductions, credits, and exemptions.
One of the most compelling reasons for simplifying the code, according to Camp, is economic growth. The independent Joint Committee on Taxation says his reform plan would generate 1.8 million new private-sector jobs, grow the economy by about 20 percent over 10 years, and add $1,300 to the pockets of the average family of four every year.
Camp says he’s now in a phase of hearing feedback and analysis of his draft plan and that he’ll eventually move on to public hearings. “I didn’t want this to be the health-care bill, where we had to pass it to find out what’s in it,” he explained, referring to a controversial comment by former House Speaker Nancy Pelosi (D) of California . “I wanted this to actually be something that the public was informed about.”
He elaborated on several aspects of the plan.
A tax on big banks, which has infuriated many in the financial sector:
Camp explained that as he was drafting his plan, businesses told him they were “willing to give up everything” to get the lower corporate rate of 25 percent. “But when you get to the financial sector, there isn’t a lot to give up,” he said. They don’t have a lot of deductions and actually pay at the top rate. “I thought it was important that that industry also have tradeoffs just like every other industry has had.”
On "carried interest" that is paid to managers of hedge funds and private equity funds:
“Common sense says that some of the income that is earned as carried interest is, frankly, wages,” Camp said. He referred to a recent Wall Street Journal report that some executives had earned $500 million but their income was $100,000. “Clearly, more of that income was salary than that small percentage.” Income that’s salary and wages, he said, should be taxed as salary and wages, and income that’s more likely investment, should be taxed that way.
On the Earned Income Tax Credit, which helps the working poor:
The EITC appeals to Republicans and Democrats, though President Obama and Camp go at it in different ways. Mr. Obama expands it in his budget proposal. Camp replaces it with a payroll exemption of up to $4,000 in order to avoid fraud. “The real problem of the EITC is the huge error rate in payments. You can call those fraudulent, improper payments. It’s $10 billion a year.” The goals of the EITC are good, he said, but “we need to make sure there’s program integrity.”
On reducing the cap on the mortgage interest deduction from $1 million to $500,000:
Because of the simplicity of the proposed code, “95 percent of Americans will not itemize. So in their view, the mortgage deduction is not going to be critical because you’re not going to be itemizing.” Also, he said, the home mortgage provision is not retroactive. “Any existing mortgage, any existing refinancing is not affected.”
On areas of agreement with Democrats:
He noted that his counterpart in the Senate, Sen. Ron Wyden (D) of Oregon, chairman of the Senate Finance Committee, also favors increasing the standard deduction and lowering the corporate tax rate. He described the president's stated recognition of the need to reform the corporate rate as a “positive development.” Camp is willing to talk with the administration on any aspect of tax reform but added, “I think it’s a mistake to use tax reform as a way to advance more Washington spending.”