Ways & Means Chairman Targets Top Tax Rates of 25%

Last Updated Mar 18, 2011 11:29 AM EDT

Corporate and individual tax rates would top out at 25 percent, versus 35 percent at present, under a proposal unveiled Thursday by House Ways and Means Committee chairman David Camp, a Republican from Michigan. The plan is intended to be revenue neutral, meaning that the lower tax rates would have to be offset somehow, but so far it's short on the when and how of what tax breaks would be eliminated to make up for the reduced taxes coming in.

"Camp will seek to eliminate necessary deductions to ensure American families and employers of all sizes have a tax code that is simpler, provides more certainty, and unlocks the job creation we need to move the economy forward," said Representative Camp's spokeswoman on Bloomberg. (I think they mean unnecessary, or maybe that was a Freudian slip sort of thing.) OK, that's great, but the only way the math works is to take away precious deductions for home mortgage interest and state and local taxes -- but Mr. Camp hasn't said that yet.

Here's a graph of the history of individual and corporate taxes -- we're pretty low already:


There is plenty of coverage of the proposal, such as The Wall Street Journal, Bloomberg and The Hill.

From The Wall Street Journal:
A tax overhaul is emerging as an increasingly urgent goal. Businesses complain that federal tax rates are among the highest in the world, following years of reductions in Europe and Asia. That is hurting U.S. multinationals' competitiveness overseas and tamping foreign investment in the U.S., analysts say.
Businesses are always complaining, but the argument isn't valid -- American companies pay low rates of tax, because there are all sorts of deductions and exclusions. Here is a graph from the Center on Budget and Policy Priorities, quoting the U.S. Treasury Department:


And the share of GDP of corporate taxes is at a low:


And despite the Chamber of Commerce's claims of so much fear and uncertainty among business people, corporate profits have never been higher.

But an announcement like this plays well this time of year, when we are all shaking our heads over income taxes. It also should figure prominently in the coming presidential election battle. From The Daily Kos:
Chances the proposal will pass muster any time soon are not great, but expect it to make fabulous spin for GOP candidates in 2012. The perfect squeeze. Faced with Republicans trumpeting their support for a big new cut in taxes, Democrats, including a President seeking reelection, will find it difficult indeed to call for an end to the tax-cut extensions, even those for the very rich. Indeed, we can expect many Democrats to sign on to tax-flattening proposals of their own.
The proposal faces many obstacles. First is that it is intended to be revenue neutral, in an environment where lawmakers are supposed to be trying to close the yawning budget deficit. His committee aides say the plan would leave tax revenues at their current 18 percent of GDP.

Second is that the measure would require taking away precious deductions and exclusions. For corporations, the biggest are accelerated depreciation on capital purchases, and breaks on domestic energy production. The lobbyists will be lined up six deep on those two issues.

For individuals, the biggest breaks are for home mortgage interest, state and local income taxes, and not having to pay tax on the value of employer-provided health care. Those are all big numbers for taxpayers who itemize their deductions, and lawmakers will be reluctant to take those away.

The housing interests really squeal on the mortgage interest angle, which I know from writing "Is The Mortgage Interest Deduction Coming To An End?" back in July. At that point, U.K. and European policymakers were starting to talk about austerity budgets, and were recommending to the U.S. that we alter or get rid of the interest deduction, which winds up subsidizing people buying bigger homes than they could otherwise afford.

Taking away the deductions is where the tax change process breaks down. From The Journal:
Rep. Richard Neal of Massachusetts, a top Ways and Means Democrat, said Mr. Camp's proposal faces difficult going. "As long as tax reform is offered in the abstract, everyone rallies to the cause," Mr. Neal said. "When it becomes specific, people start to fall off."
Personally I would hate to see the individual deductions go away, but if we are going to fix our budget deficit, as a nation we have to either pay higher taxes or have fewer services, or both. Cutting a few programs here and there doesn't get us to the real savings. And we still haven't had that "adult conversation" on government spending and taxation promised by our political leaders. Whenever you're ready, Mr. President and Mr. Speaker.
  • John Keefe

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