Don’t Republicans have the stomach for tax reform?

Rep. Dave Camp (R-Mich.)
Rep. Dave Camp (R-Mich.), chairman of the House Ways and Means Committee, speaks during a news conference in Washington on Wednesday. Camp, the top Republican tax writer in Congress, proposed restructuring the U.S. tax code to eliminate dozens of breaks to pay for reductions in the corporate and individual rates.
(Andrew Harrer / Bloomberg)

It turns out that Democrats may not be the biggest stumbling block facing Rep. Dave Camp’s ambitious proposal to simplify the tax code and reduce rates.

Many of Camp’s Republican colleagues, convinced that their party is poised to make big gains in the November elections, don’t want to take up something as controversial as a tax code overhaul this year. And Camp’s bill raised hackles among some important GOP donors by targeting them for tax hikes.

As soon as Camp, the chairman of the House Ways and Means Committee, unveiled his magnum opus Wednesday, his brethren started backing away from it. Although it’s as thorough a rewriting of the code as you’re likely to see, the GOP leadership didn’t assign it the bill number they had reserved for tax-reform legislation, HR 1, signifying that Camp’s proposal was anything but a consensus document. And numerous members, from House Speaker John A. Boehner (R-Ohio) on down, emphasized that the proposal was just a first draft to get the discussion going.

The conventional wisdom now is that Camp’s bill won’t come up for a vote in the House, meaning it has no chance of becoming law while Camp is leading Ways and Means. Under House GOP rules, he has to relinquish the gavel next year.


And that’s more than a little sad. I don’t like all of the choices he made, but his bill would simplify the tax code, broaden the base and lower marginal rates dramatically, yet preserve (in fact, slightly increase) the progressivity of the system. In other words, the rich would bear no less of the tax burden than they do today, and the poor no more. And with fewer targeted tax breaks, the code would invite less gamesmanship and distort fewer markets.

Those features make the measure a great starting point for a long-overdue tax overhaul. But it looks as if any serious discussion of its provisions will have to wait until next year, if it’s to happen at all.

I wondered earlier in the week whether Democrats could support a tax reform plan that lowered rates, even if it didn’t amount to a tax cut for the wealthy (or any other particular group). As it happens, Camp’s inclusion of a 10% surcharge on incomes over $400,000 created a 35% bracket for all intents and purposes, reducing the appearance of a massive tax cut for CEOs. As a result, top Democrats largely held their fire on Camp’s proposal. Instead of questions about fairness, their main concern seemed to be that the overhaul was “revenue neutral” -- it wouldn’t raise money to reduce the deficit.

That complaint has a pretty good rebuttal. The overhaul would spur economic growth, generating up to $700 billion in additional tax revenue in the coming decade for deficit reduction or spending priorities, the Joint Tax Committee estimated. That’s on top of the more than $120 billion in extra dollars the measure would steer to transportation projects.


For Republicans, though, the bill threatened to gore many oxen. That would be true of any tax-simplification effort; eliminating tax breaks is bad for those who have structured their businesses to take advantage of those wrinkles in the code. But Camp’s proposal would also target big banks, private-equity executives and hedge fund managers for costly tax increases.

These proposals didn’t spring from some Occupy Wall Street-inspired impulse to soak the rich. The tax on “systemically important” banks was designed to encourage institutions that are “too big to fail” to shrink, reducing the need for a government takeover and bailout in the event of a sharp downturn. In that sense, it’s a more market-oriented approach to the too-big-to-fail problem than the extra regulatory supervision Congress piled on in 2010.

As for private equity and hedge fund executives, Camp proposed to eliminate the controversial tax break they enjoy on “carried interest.” When these firms buy, reshape and sell a company, typically with little or none of their own executives’ money, much of the compensation paid to the lead executive is tied to the increase in the value of that company. The IRS has treated this increase as a capital gain; Camp’s bill would treat it as payment for services rendered, subject to the higher tax rate applied to ordinary income.

Politico reported that Camp’s bill drew a harsh response from Wall Streeters, who have been top contributors to the House GOP’s campaign committee. “Private equity and investment firms in New York are telling key Republican players in D.C. that commitments for big-dollar fundraising have been ‘canceled for the foreseeable future,’ according to one GOP lobbyist with knowledge of the conversations,” according to the site.

That’s one way to dampen interest in a bill.

Even without such threats, passing a major tax overhaul would have been a heavy lift -- especially in a Congress as polarized as this one. Still, Camp included much in his bill for both sides to like amid the heartburn-inducing provisions. It would great to see lawmakers try to do something with it.

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