Government & Politics

Setting Up Camp for Tax Reform

Feb. 27, 2014
Simplifying taxes

“There have been so many changes to the tax code over the past decade that it is now 10 times the size of the Bible, but with none of the Good News,” jokes House Ways and Means Committee Chairman Dave Camp (R-MI) in a Wall Street Journal op-ed laying out his new tax plan. Camp has been working for three years on a proposal to overhaul the tax code, which hasn’t been done since 1986. As The Heritage Foundation’s Stephen Moore notes, “Since then, year after year, the tax code gets engrafted with more special interest loopholes, credits, and carve-outs. Not only is this unfair to those without lobbyists, it makes the tax code mindlessly complex – a job security program for tax lawyers and accountants.”

There are currently seven individual tax brackets with a top individual rate of 39.6%, while the corporate rate is 35%, the highest in the industrialized world. Camp proposes just two individual tax rates – 10% and 25%, though there would be a 10% surtax on some annual income above $450,000 for joint filers, making an effective third rate – as well as a corporate rate of 25%. Capital gains and dividends, excluding the first 40% earned, would be taxed like ordinary income at the individual rates. Camp’s surtax makes the top rate far too high and is an ill-advised sop to the Left, but, overall, the plan is an improvement.

In exchange for lower rates, many deductions and credits are reduced or eliminated. But the standard deduction is raised so that an estimated 95% of filers will claim it. Camp explains, “The guiding principle is that everyone should play by the same rules – your tax rate should be determined by what’s fair, not by who you know in Washington.”

The trouble is that Democrats – and a great many Republicans – prefer to use the tax code to reward constituency groups with tax deductions and credits. And every such item in the tax code has its very own lobbying group. For example, Camp’s plan keeps the popular and lobbied-for mortgage interest and charitable giving deductions. Democrats also view the tax code as the best way to “level the playing field” by taking wealth from the haves and redistributing it to the have-nots.

One of the virtues of Camp’s plan is that more people would have “skin in the game” – they would pay taxes to fund the big government they so love. Many of them wouldn’t love it nearly so much if they got the bill. But that feature is also its greatest handicap, because Democrats will campaign against “Republican tax cuts for the rich on the backs of the poor.” History, however, shows that lower rates yield higher revenue and a greater share paid by the “rich.”

While Democrats want to raise taxes on the “rich” so they can steal more income (at least in the short term), Camp says under a static analysis his changes would be revenue neutral. Lower rates will result in economic growth, accompanied by nearly two million more jobs and rising wages. According to the Joint Committee on Taxation, the plan would increase GDP by 1.5% – or about $3.4 trillion – over the next decade. All of which means it could raise as much as $700 billion in extra revenue over 10 years.

Despite the fact that Camp’s plan has no chance of passage with the present makeup of Washington, we sure could use some economic growth after five years of the anemic Obama “recovery.” A positive agenda like this should be welcome this election year.