Reforming the American tax code was a priority for 113th Congress, which first met in January 2013. But the current session of Congress has been anything but prolific. Before the legislative body took its holiday break, the House of Representatives and the Senate had sent President Barack Obama fewer than 70 bills for his signature, making the infamous “do-nothing Congress” of the late 1940s appear active.
“Any way you measure it, quantitatively it stands out as an unusually unproductive session of Congress,” Thomas Mann, a Brookings Institution scholar, told the Los Angeles Times. Mann is the coauthor of a book on legislative dysfunction titled It’s Even Worse Than It Looks. “The problem is not the number of bills,” he said, “but what Congress specifically did that ended up inflicting harm rather than creating conditions for improved performance.”
In short, it appears unlikely that tax reforms will be passed in 2014. Even though Republicans have pledged for three years to lower the top individual income tax rate to 25 percent, it is a well-known fact that because it is a congressional election, politicians will have their focus on talking up important campaign issues. For Republicans, who have voted 49 times to defund or repeal the Affordable Care Act, the party’s main goal is reforming health care reform. Continuing to attack Obamacare is seen as giving the GOP its best chance to win back the Senate.
The election-year political climate and the incredibly polarized Congress into which Republican Rep. David Camp’s tax reform was born seem to have already doomed the bill to a short life. Bloomberg View’s Al Hunt declared the plan “dead on arrival” because it contains the kind of tradeoffs between conservative and liberal goals that come tough to politicians in election. But it is still the most comprehensive restructuring of U.S. code since 1986, when tax cuts were give to each income bracket and the top rate was lowered from 50 percent to 28 percent.
During Camp’s three years as chairman of the House Ways and Means Committee, more than thirty separate Congressional hearings have been dedicated to tax reform, eleven separate bipartisan tax reform working groups have been created, three discussion drafts have been authored, and more than 14,000 public comments have been taken at TaxReform.Gov. But no reform has been made.
“Our code is overly complex — as I like to say, ten times the size of the Bible with none of the good news,” Camp said Wednesday on CBS’s “This Morning” program. “It’s really a wet blanket over our economy.” Similarly, in a press release announcing the Tax Reform Act of 2014, the congressman explained why tax reform is essential: “We’ve already lost a decade, and before we lose a generation, Washington needs to wake up to this reality and start offering concrete solutions and debating real policies that strengthen the economy and help hardworking taxpayers. Tax reform is one way we can do that.”
Very generally, the 979-page draft legislation would reduce taxes for individuals by $590 billion over the next decade while neither increasing nor reducing the budget deficit; it will also not reduce the tax burden on high-income taxpayers. Those constraints forced Camp to make tradeoffs. His plan simplifies individual and corporate rate structures, leaving more than 99 percent of all taxpayers paying rates of 25 percent or less and dropping the corporate rate to 25 percent.
In total, the word “repeal” was used 404 times. The deductions for medical expenses in excess of 10 percent of income and for casualty losses were repealed, as were tax benefits for alternative energy. But Camp’s proposal did keep nearly all of the $400 billion in tax increases that were imposed to finance the Affordable Care Act.
The nonpartisan Joint Committee on Taxation analyzed the proposed reform and found that it would create 1.8 million new private sector jobs, allow approximately 95 percent of tax filers to qualify for the lowest possible tax rate by simply claiming the standard deduction, leave the average middle-class family of four with an extra $1,300 per year of income, and increase gross domestic product by up to $3.4 trillion, or the equivalent of 20 percent of today’s economy. But Camp’s changes have left organizations from the National Football League to immigrant advocates to private equity firms displeased.
What might be most noteworthy about Camp’s reform is his goal to spread the benefits of the tax reform equally among Americans of different income levels, even if he had to forgo the longstanding Republican promise to lower the top rate to 25 percent. Instead, under Camp’s plan, the rate for highest income earners stands at 35 percent, which is 4 percentage points lower than the current one.
“It was a distribution issue,” Camp told Politico. Lowering the tax rate down to 25 percent “would have reduced taxes for the top 1 percent,” and “I said we would be distributionally neutral.” This inability to lower the tax rate to 25 percent not only displeased his colleagues, who had repeatedly vowed to lower the rate to that level, but pointed to a larger problem.
The most fundamental problem facing a Republican-drafted tax reform is balancing lower tax rates with maintaining the current distribution of the tax-paying burden so as to avoid Democrat accusations that the GOP’s plan favors richer Americans, who would benefit from a top tax rate of 25 percent. Lowering the top tax rate to 25 percent is a long-held goal of the Republican Party, a goal that makes wading into the massively complicated issue of tax reform worthwhile.
“This is certainly going to give members pause,” Republican tax aide turned lobbyist Dean Zerbe told Politico. “Lawmakers may look at the proposal and think: ‘I’m having the world coming down on me’ … For some, it may start the conversation and, for others, it may end the conversation.”
According to the Joint Committee on Taxation, the results of Camp’s reform would leave those earning more than $1 million paying 0.5 percent less than they are currently. Meanwhile, those earning between $500,000 to $1 million would pay 2.4 percent more; taxes paid by those earning between $100,000 and $500,000 would remain relatively unchanged. Those earning between $10,000 and $20,000 would see their taxes halved, and those earning between $40,000 and $50,000 would also pay less than they are currently.
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