StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between

Camp Plan Puts Nail In Tax Reform Coffin For This Year, And Next, And...

26 Feb 2014
Posted by Stan Collender

It had almost no chance of being enacted anyway, but the comprehensive tax reform proposal that will be revealed by House Ways and Means Committee Chairman Dave Camp (R-MI) this afternoon kills even the very limited possibility that something will happen on taxes this year.

It also very likely kills the chance of tax reform in 2015 and 2016.

The reason is simple: The plan includes tax increases on key Republican constituencies. No matter how rational that might be from a numerical point of view, that's not something Camp's colleagues will be able even to tacitly approve let alone actually vote for before either the next congressional election this November or the next presidential election in 2016.

In fact, Camp's heir-apparent at ways and means -- House Budget Committee Chairman Paul Ryan (R-WI) -- and Speaker John Boehner (R-OH), the two most important people on tax reform other than Camp himself, both made it clear today before the Camp plan was formally revealed that they (and, by extension, House Republicans) are not close to being ready to deal with tax increases any time soon. Given that Ryan will likely take over from Camp next year, the very clear message he sent this morning was that the prospects for a tax increase will be different when he's chairman.

Comprehensive tax reform will take at least as long to enact this time around as it did in the 1980s. That process, which took three years to complete, was far simpler than what's ahead this time because (1) taxes were not the wedge issue then that they are today; (2) the 1980s effort was understood to be revenue-neutral whereas this one may well have to increase taxes overall; and (3) social media, radio talk shows and MSNBC and Fox were not influential in Washington in the 1980s.

Camp is very unlikely even to get a vote on his proposal this year. The GOP leadership may allow him to hold hearings, but there's little likelihood Republican members will be asked to vote on the bill unless the tax increases are eliminated. That would be a huge slap in the face to Camp that can be avoided just by keeping a bill off the House floor. The same will likely be true in 2015 and 16.

That means that the tax reform clock doesn't start to run until 2017. If it then takes three years to complete the process, a bill doesn't get enacted until 2019 at the earliest.

The biggest problem I have with the Camp plan

The biggest problem I have with the Camp plan is that it claims to simplify the tax code, while actually making it much more complex.

For example, there is now a 10% surtax (really just another bracket) that applies to certain income but not other income (e.g., income that comes from "activities that produce goods" such as manufacturing and farming is exempt). Good luck with the rules on that one.

The phaseouts for many deductions are made more complex, you now have a higher rate on capital gains but don't pay taxes on 40% of those gains (pure gimmick), restrictions on tax free sales of homes, etc.

In exchange, we get fewer brackets. The GOP has sold it's base on the lie that the complexity in the individual income tax comes from having so many brackets. That is abject nonsense. Having more brackets does not add complexity. The real complexity comes from the walk from Adjusted Gross Income to Taxable income, i.e., all of the itemized deductions. If you really want to reduce complexity, then just eliminate all deductions (including mortgage interest, charitable contributions, state/local taxes, health insurance premiums, etc.) and increase the statndard deduction to a level such that ~80% of people will see their total tax burden relatively unchanged. Unfortunately, that will never happen.

I'm with you, RueTheDay on

I'm with you, RueTheDay on the silliness of the number of brackets equalling "complicated" The only real reason to reduce the number of brackets is that fewer brackets make it harder to raise the tax rates on the increasingly concentrated wealth. It is much more difficult politically to raise taxes on 20% of the population than on 1% of them. Or even .1%.

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