Camp to Release Tax Reform Draft Next Week
Next week, House Ways & Means Chairman Dave Camp is set to release a draft of a bill to revamp the U.S. tax code, according to press reports. It was unclear whether Camp would release a tax reform draft at all, as House Republican leadership remains skeptical of tax reform, and Camp's Senate taxwriting counterpart Max Baucus was recently confirmed as Ambassador to China. While details about the bill are still scarce, Camp's decision to release a draft represents a positive step forward for the tax reform debate.
We applaud Chairman Camp's decision to release a draft. It is one thing to talk in generalities about the need to lower tax rates and make the tax code simpler, but the debate does not move forward until legislators get specific. Simplifying the tax code and reducing rates will require eliminating or significantly scaling back some popular tax breaks. For instance, making changes necessary to reduce the corporate tax rate (currently at 35 percent) below 30 percent without increasing the deficit almost requires changing accelerated depreciation and Section 199, which both provide significant tax breaks to manufacturers. On the individual side, reducing rates will require eliminating or scaling back popular deductions, such as the deductibility of state and local sales taxes which Camp held a hearing on last year. A serious effort to reform the tax code will require numerous tradeoffs, but if done properly, the economic and fiscal benefits of tax reform will justify the tough choices that will be necessary.
Tax reform has the potential to improve the fairness of the tax code, make U.S. business more competitive, and improve the deficit. Our partners at Fix the Debt summed up nicely the case for comprehensive tax reform, arguing that many of the $1.3 trillion of tax preferences are:
Many of these preferences are expensive, regressive, and economically distorting; they increase complexity, reduce fairness, and let the government pick winners and losers. The higher than necessary rates, narrow base, and sheer complexity in the tax code hurt economic growth by driving up compliance costs and reducing incentives to work, save, and invest.
Similar to the analyses we provided of the Baucus discussion drafts released last year, we will eagerly wait to see what is in Camp's tax reform draft and provide analysis of the draft when it is released. Although tax reform efforts may be temporarily stalled, Chairman Camp's has done a great deal of work on the nuts and bolts of tax reform in his four years as Chairman, and he can make a valuable contribution to the debate before he steps down as Ways & Means chairman at the end of this year by putting forward a comprehensive proposal based on that work.
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Looking for more info? Check out Fix the Debt's case for comprehensive tax reform and our blog series "The Tax Break-down" that examines the tax breaks under discussion as part of reform and options for reforming them.