It is too bad that Dave Camp’s (Chairman of the House Ways and Means Committee, R-MI) tax reform plan doesn’t have much chance (and that is putting it optimistically) of surviving a Senate vote after it clears the House. I think it should receive serious consideration because it has some benefit for most groups and some pain for most groups. It reminds me of the essentially even-handed approach taken by the Ryan-Murray budget. In my opinion the plan does not simplify the tax code nearly enough, but I favor the Fair Tax over all other tax plans. Nevertheless, Camp’s plan should serve as a realistic beginning to a long and necessary process of tax reform if Washington were in a mood to compromise. Unfortunately, mid-term elections are this year and that is likely to ramp up partisanship.
It is my opinion that Camp’s Plan would help energize the economy while purportedly remaining revenue neutral to the federal government. The fact that the private sector would have access to more of their income would be the primary driver to that economic growth. Spending and investment by the private sectors is key to our continued growth and prosperity.
Below are a few key features to the Plan. I would encourage readers to do a deeper dive into the details. You can find one of the many varied sources of information here. No one will have more than a draft of the plan available at present as it obviously takes a while to study 979 pages of proposed tax changes.
Quick notes to Dave Camp’s Plan:
1. Consolidate seven personal income brackets down to three with rate of 10%, 25% and 35%.
2. Some significant deductions are eliminated, including medical expenses, moving expenses, state and local tax deductions, and the personal exemption.
3. Eliminate the Alternative Minimum Tax.
4. Increase the standard deduction to $11,000 for an individual and $22,000 for joint filers (which takes on a whole new meaning in CA and CO), with a $5,500 deduction for each qualifying child.
5. The Capital Gains and Dividend Taxes are increased from 23.8% to 24.8%. There is a 40% exclusion on these incomes before they are taxed at ordinary income rates. This, plus the 3.8% tax from the Affordable Care Act, results in a 24.8% rate.
6. Lower the top business tax rate to 25%.
7. Lower the pass-through business tax rate to 35% (currently 39.6%). More than 50 percent of business income is through pass-through entities. The tax rate would be 25% on pass-through manufacturing entities.
8. Repeal of LIFO (note: this will be anathema to many wholesaler-distributor groups).
9. A large number of credits and deductions for the oil, gas, and green energy companies are repealed, including the solar energy credit.
10. The Obamacare 2.3% excise tax on medical devices would be repealed.
I do not agree with everything that is proposed, but that is really the point. No one person or group will like everything, but there is enough in here that is for the general good, which makes it very worthwhile and well crafted.