Congressman Camp Set to Introduce Tax Reform PlanFebruary 26, 2014
Today, House Ways and Means Committee Chairman Dave Camp (R-Mich.) is set to release a proposal to overhaul the tax system—a first attempt at rewriting the tax code in nearly 30 years. As chairman of the tax-writing committee, Camp has made tax reform one of his top priorities.
Camp had hoped to move comprehensive tax reform legislation through the Ways and Means Committee last year but ultimately backed away from the plan at the urging of House Republican leaders, who wanted to keep Congress and the public focused on issues related to the rollout of the Patient Protection and Affordable Care Act (PPACA).
According to analysis by the Joint Committee on Taxation (JCT), several of proposals in Camp’s plan include:
- Cuts top income tax rate: The plan cuts the top income tax rate from 39.6 percent to 25 percent.
- Two tax brackets: The proposal reduces the seven existing tax brackets to just two, 10 percent and 25 percent.
- Surtax on high-income earners: It establishes a 10 percent surtax on couples earning $450,000, which would apply to different parts of their income including employer-provided health care and tax-exempt bonds.
- Capital gains and dividends: The plan eliminates the current top rate of 20 percent on long-term capital gains and dividends. Capital gains and dividends would still be taxed like ordinary income, but 40 percent would be excluded from income for tax purposes.
- GDP growth: It increases real GDP by as much as 1.5 percent to 1.6 percent a year over the next decade.
Camp had hoped to work with Max Baucus (D-Mont.), the former chairman of the Senate Finance Committee and new ambassador to China on tax reform this year. With Baucus’s departure, the new committee Chairman is Ron Wyden (D-Ore.), who supports tax reform and has in the past drafted his own proposal, but since taking over as chairman has identified other less, comprehensive priorities. Nevertheless, Camp faces an almost insurmountable challenge if he hopes to pass tax reform before his time as chairman is complete at the end of this Congress, due to term limits: yesterday, Senate Minority Leader Mitch McConnell (R-Ky.) said he sees no hope for tax reform this year.
Release of Camp’s plan serves as a significant marker in the tax reform debate, but it does not guarantee that Congress will act on a tax code rewrite this year. As the midterm elections approach, congressional leaders may be reluctant to have their members take potentially difficult votes on tax reform legislation if it involves scaling back or eliminating certain popular business or individual tax expenditures in exchange for lower rates.
Moreover, partisan divisions remain over fundamental questions such as whether tax reform should be revenue neutral, the position generally preferred by congressional Republicans, or raise revenue for deficit reduction – the option endorsed by most congressional Democrats and President Obama.