Rep. Dave Camp, the chairman of the House Ways and Means Committee, will release his draft legislation to reform the tax code Wednesday afternoon. In an op-ed for The Wall Street Journal, he writes, "On Wednesday, I am releasing what a simpler, fairer tax code actually looks like. 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." This is Camp's last year as chairman, and he's been working on his plan for years. But many Republicans in the House wish he'd keep it to himself.
Update, 10:55 am: Speaker of the House John Boehner had an enthusiastic response when asked about the details of Camp's plan Wednesday morning: "Blah, blah, blah, blah." He continued, "There's a conversation that needs to begin. This is the beginning of the conversation." His remarks underscore the belief that the House leadership is not rushing to support Camp's plan.
Original: Camp's plan does simplify the code, and Republicans can generally agree on the reforms Camp's proposing. In fact, the reforms match a lot of what House Budget Committee chairman Paul Ryan called for last year. So why are House Republicans — quietly and not-so-quietly — balking?
It's an election year. The GOP believes that 2014 could be the year they keep the House and take the Senate, and Camp's plan has the capacity to anger huge interests like Wall Street and average donors like lawyers and accountants. The plan also employs some Democratic initiatives, which is another no-no.
The crux of the plan is that seven existing tax brackets will be condensed into two, making the top corporate and individual rates 25 percent. Households with a joint income of over $450,000 will then be charged a 10 percent surtax to account for lower rates across the board. This accomplishes Republicans' long-held goal to slash the top rate to 25 percent, but some are not happy about that surtax, especially since it may target professionals like accountants and lawyers, according to aides who have seen the plan. Super-rich individuals may avoid the surtax, because it probably won't apply to income derived from interest and investments. (Camp doesn't address the surtax in his op-ed.) John Buckley, a former chief tax counsel for Ways and Means Democrats, tells Politico, "He really is going back on his 25 percent."
Camp says that he's prepared to close loopholes for the wealthy. In his op-ed, he writes,
We can clean up provisions like "carried interest" that allow certain private-equity firms to get the investment-income tax rate on what anyone else would call normal wage income. We'll also put an end to special depreciation benefits related to corporate jets and close, once and for all, the infamous "John Edwards" loophole that allows a select few to avoid employment taxes on their income. The revenue gained from that provision, and many others ... can be used to lower tax rates across the board.
This, of course, could anger big donors. And Camp's plan, according to those who've seen it, goes after Wall Street specifically. Banks with over $500 billion in assets — Citigroup, Bank of America, etc. — would have to pay a quarterly tax. Some analysts think banks would actually end up paying less in taxes under the plan, since the top corporate tax rate will be lower. Still, giving big banks an extra tax doesn't look good to Republicans, and that's what matters in an election year.
Until the full plan is released on Wednesday afternoon, we won't know exactly how Wall Street and private-equity firms will respond. Steve Judge, the president and CEO of the Private Equity Growth Capital Council already told Politico's Ben White, "It is so disappointing that Chairman Camp chose to single out private equity, real estate, and venture capital investment by exacting a 40 percent tax increase that will discourage new investment."
For now, House leadership is staying (mostly) mum. Camp's plan is unlikely to get the support it needs to pass this year, and Republicans are hoping debate on it stays limited. One leadership aide said yesterday that no one in leadership offices is "doing back flips that he’s doing this. It’s just, at this point, what’s the point of telling [Camp] 'no' if this is what he wants to do and he thinks this is going to sell it?"
Camp insists, "The last time the U.S. enacted a comprehensive tax reform was 1986. But many of America's major competitors have been actively reforming their tax laws in recent years. ... Canada has already reformed its tax laws and Mexico is doing so right now. If Congress doesn't take action, the U.S. risks falling further behind."