A top House Republican unveiled an ambitious tax code overhaul Wednesday, taking aim at long-protected loopholes for mortgage interest deductions, corporate jets and Wall Street pay, while promising to lower top rates to 25 percent for most individuals and corporations.
But it has little chance of becoming law.
The White House cautiously welcomed the effort, but top Republican leaders in Congress, including House Speaker John A. Boehner, R-Ohio, and Senate Minority Leader Mitch McConnell, R-Ky., showed little interest in putting GOP lawmakers in the uncomfortable position of compromising with President Barack Obama as the midterm election approaches.
Their lack of enthusiasm all but ensured there would be no legislative action in the divided Congress.
Even without a foreseeable path to approval, the proposal was quickly criticized by several organizations representing the long list of industries whose special treatment in the tax code would be undone. Banks, investment houses and others all warned against unfairly targeting one section of the economy over another.
Still, the draft from Rep. Dave Camp, R-Mich., chairman of the House Ways and Means Committee, won praise from budget hawks for its bold approach to an issue that has perplexed Congress. Since the last major overhaul in 1986, the tax code has grown increasingly complicated and appears to some lawmakers to give preferential treatment to Americans who are able to hire accountants and benefit from deductions.
“The truth is, people want a simpler, fairer and flatter tax code,” said Camp, who is expected to step down from the chairman’s post next year. The Tax Reform Act of 2014, which he said would boost the economy, has long been awaited as a coda to his tenure as chairman.
The proposal meets the longtime Republican goal of reducing the top tax rate to 25 percent for individuals and corporations, which are now at 39.6 percent and 35 percent respectively.
But Camp diverged from those efforts by slapping a 10 percent surtax on high-income earners – households that make more than $450,000 – which experts at the Tax Policy Center say essentially boosts the top rate to 35 percent.
Camp wants to shift individual income tax filers away from itemizing their deductions, and instead have them take an enhanced standardized deduction – which would almost double to $11,000 for singles and $22,000 for married couples. Child tax credits would also increase.
But the proposed elimination of longstanding tax loopholes ensures the proposal will be a political lightning rod for lawmakers in both parties.
Gone would be the special treatment for hedge fund managers and Wall Street’s private equity firms, who would no longer be able to count their compensation, called carried interest, as capital gains, which have a lower top tax rate of 20 percent. Instead, those earnings would be taxed as ordinary income, something Republican and Democratic lawmakers have resisted.
The mortgage interest deduction, which is now available on home loans valued up to $1 million, would be capped at $500,000 by 2018, with the phase-out starting in 2015 – a particular concern for lawmakers from high-cost housing areas.
The depreciation deduction on corporate jets, long in lawmakers’ sights as a symbol of special treatment, would be eliminated.
Also gone would be the deduction for state and local taxes, which Sen. Charles E. Schumer, D-N.Y., said made the Camp proposal “dead on arrival.”
The proposal largely steers away from Republican efforts to stop the new health care law, but would repeal a tax on medical device manufacturers that has backing from both parties.
Democrats have long wanted to use revenue generated by closing loopholes – which total $1 trillion a year – for program spending or deficit reduction, something Republicans have resisted. Camp said his proposal would not generate revenue beyond what would be used to make up for the lowered rates.
One area of potential partisan agreement was Camp’s idea to transfer $126 billion to the dwindling highway trust fund, something the White House found encouraging as a way to help pay for the president’s proposed infrastructure investment.
But Boehner dismissed questions over the thorny details of the tax overhaul Wednesday as “blah, blah, blah, blah,” and said the chairman’s proposal was “the beginning of the conversation.”
McConnell said earlier this week that he did not see how any compromise that raised revenue, as Democrats want, could be achieved.