In a properly functioning Washington, the tax reform plan unveiled Wednesday by House Ways and Means Committee Chairman Dave Camp, R-Mich. would kick off a major debate over how to fix the federal government’s inefficient system of revenue collection. Camp proposes to overhaul both the corporate and individual tax codes, based on the principle that lower rates should be applied to a broader base of income — that is, one that is purged of many loopholes and deductions that litter current law. The Camp plan would reduce the corporate rate to 25 percent from a maximum of 35 percent and replace the seven marginal rates for individuals with three: 10, 25 and 35 percent.
The congressional Joint Committee on Taxation scores the plan as essentially revenue-neutral; that is, it neither increases nor decreases the federal government’s total tax take. Its most innovative feature is an expansion of the standard deduction, which would take away any incentive to claim tax breaks from all but the wealthiest 5 percent of filers. For these people, Camp would trim both the mortgage-interest and charitable deductions. Camp is admirably specific about other special-interest goodies he would do away with to pay for his lower rates: The notorious special treatment of “carried interest” for hedge fund managers would go, as would the break for corporate jets that President Barack Obama has frequently targeted.
In the actual Washington, alas, Camp’s proposal has basically no chance of passage, or even of being acted upon this year. Much of the blame for that belongs with the leaders of his party, who smell victory in the November elections and don’t want to do anything controversial — such as committing themselves to an actual positive agenda — that might put that prospect at risk. Instead of praising their fellow Republican’s plan, House Speaker John A. Boehner, Ohio, and Senate Minority Leader Mitch McConnell, Ky., threw cold water on it.
Not everything in Camp’s fine print strikes us as sensible. He would leave the favorable treatment of investment income for top earners, a major source of the growing rich-poor gap, basically intact. His plan takes gratuitous aim at Obamacare, sacrificing $29.5 billion in needed revenue (over 10 years) by eliminating an excise tax on medical devices. Its revenue estimates depend too heavily on improved efficiency in the earned-income tax credit, a program that is admittedly plagued by overpayments but is also a vital, effective support for low-income workers. Revenue neutrality is not necessarily desirable, given the country’s long-term fiscal problems.
Still, Camp’s proposal is a serious approach to a serious problem. It sets a standard of specificity that future gripers about our broken tax system should have to meet. It acknowledges that, for rates to come down, some popular loopholes will have to be constricted. It leans in favor of GOP priorities, to be sure, but incorporates some Democratic ones. And for all those reasons, no one on Capitol Hill seems interested.