Rep. Dave Camp’s long-awaited proposal to overhaul the tax code drew fire from all sides Wednesday for eliminating some tax breaks while raising others, signaling that the proposal is unlikely to get anywhere this year.
Mr. Camp said his “discussion draft” simplifies a Byzantine system by cutting 220 sections of the U.S. tax code and collapsing seven tax brackets into two effective rates. He said it was worth starting a conversation even if it doesn’t go anywhere this year.
“Look, we have an obligation to debate the big issues of the day,” said the Michigan Republican and chairman of the Ways and Means Committee. “I put out this detailed discussion draft so we can engage the American people on this and I think this is something that, as I’ve traveled the country and through the hearings and all the meetings with folks I’ve had, that this is something that people very much want to see move forward.”
The Joint Committee on Taxation (JCT) estimates the plan would create up to 1.8 million new jobs, boost gross domestic product by 3.4 percent, and increase the income of an average family of four by up to $1,300 per year.
Among other provisions, Mr. Camp said it would shore up the depleted Highway Trust Fund with $126.5 billion of dedicated funds.
It would also tax long-term capital gains and dividends as ordinary income, while still exempting the first 40 percent. Democrats have often decried that particular exemption a giveaway to the rich, while many Republicans say treating investment earnings as regular wages amounts to “double taxation.”
Steve Judge, president and CEO of the Private Equity Growth Capital Council, said it was “disappointing” that Mr. Camp “chose to single out private equity investment by exacting a 40 percent tax increase that will discourage new investment.”
Both President Obama and Republicans have talked about a major tax overhaul for years, but have stalemated over whether such a plan should be revenue neutral or should raise more money to help bring down the deficit or spend.
Meanwhile, special interests have rallied to oppose any changes that would remove their tax breaks.
Senate Minority Leader Mitch McConnell, Kentucky Republican, said Tuesday there was no chance of tax reform happening this year, and House Speaker John A. Boehner offered another stiff-arm Wednesday when asked about the investment income provision.
“Blah, blah, blah, blah,” the Ohio Republican said. “Listen, there’s a conversation that needs to begin. This is the beginning of the conversation.”
The reception wasn’t all bad, however. Rep. Paul Ryan, Wisconsin Republican and chairman of the House Budget Committee, called Mr. Camp’s plan “a terrific first step.”
And White House spokesman Josh Earnest said the infrastructure money and proposal to close the loophole on investment income were encouraging. But he said the blueprint ends the earned income tax credit, which would be transferred into a smaller payroll tax deduction. The earned income credit benefits lower-income individuals and families, and Democrats want to see it expanded.
David Bozell, executive director of the conservative advocacy organization ForAmerica, said the pre-emptive strikes on Mr. Camp’s plan and overall cool reception from Republican leaders were disappointing.
“This was something that the Republican Party stood for,” he said. “Forget the substance of it for a second — the guy’s been hung out to dry.”