Chairman Camp Releases Tax Reform Discussion DraftMarch 5, 2014
On Feb. 26, House Ways and Means Committee Chairman Dave Camp (R-Mich.) released a draft entitled: “Tax Reform Act of 2014” that would lower corporate and individual tax rates, reform U.S. international tax rules and aims to simplify the tax code.
Similar to Camp’s previous discussion drafts that he unveiled in 2011 and 2013, this latest draft is not an introduced bill, but it does contain legislative language. Although Congress faces significant election-year challenges in enacting tax reform legislation, Camp plans to work this year to gain support from lawmakers on both sides of the aisle for a comprehensive overhaul of the tax code.
Under Chairman Camp’s proposal, the current 35 percent top corporate rate would be reduced over five years to 25 percent. The proposed corporate rate reduction would be phased in by two percentage points each year from 2015 through 2019. He also proposes to replace the current seven individual income tax brackets—ranging from 10 percent to 39.6 percent—with two tax brackets of 10 percent and 25 percent.
A new 10 percent surtax is proposed on certain types of income above $450,000 for joint filers and above $400,000 for single filers. The surtax would apply to modified adjusted gross income (MAGI) above the threshold amounts, which would include certain items currently excluded from taxable income, such as employer provided health benefits and the self-employment health deduction, the section 911 income exclusion, tax exempt interest, untaxed Social Security benefits and 401(k) contributions. In addition, the standard deduction would be phased out for all filers with MAGI income exceeding certain thresholds.
Additionally, the draft would repeal the individual alternative minimum tax (AMT) and the corporate AMT. The research and experimentation (R&E) credit would be modified and made permanent. Beginning in 2014, the draft would make permanent an expensing limit of $250,000 and an investment phase-out of $800,000. Rules allowing computer software and certain investments in real property to qualify as section 179 expensing also would be made permanent.
Significantly, Camp released two revenue estimates from the Joint Committee on Taxation (JCT) staff in conjunction with the draft: the first, a traditional “static” score, shows that the proposal would be revenue neutral over 10 years; the second, a so-called “dynamic” score, which includes estimates about the macroeconomic impact of the proposal, projects that Camp’s plan would boost the size of the economy and therefore also boost federal receipts by between $50 billion and $700 billion over 10 years, depending on which assumptions and models are used to make the calculations.
Since becoming chair in 2009, Camp has devoted much of his time and energy to tax reform and he is going to continue to push forward on trying to get this enacted before his term is up at the end of this year due to term limit rules. Even if no further action is taken on Camp’s draft in 2014, it is likely, at the very least, to greatly influence the content of any and all future tax reform legislation.