CAPITOL LOOKOUT: One person’s tax reform is another’s tax increase

Posted on Written by Michael Sciulla
Michael Sciulla

Like a mariner in distress shooting off a flare gun in the hope that someone will notice, the chairman of the tax-writing House Ways and Means Committee, Rep. Dave Camp, R-Mich., introduced a sweeping tax reform bill earlier this week that every American should start preparing for, especially if the Republicans win control of the U.S. Senate in the November midterm elections and gain control of Congress.

In his quest to produce a flatter, revenue-neutral tax package, Camp proposes to repeal so many sacred cows that not one member of Congress stood by him as he faced the cameras. That this is a year in which every member of the House must stand for election probably had something to do with it. Click here for a video clip.

Initial reviews of Camp’s comprehensive Tax Reform Act of 2014 suggest that hundreds of tax credits and deductions that individuals, families and businesses have come to rely on would be swept away in an effort to reduce the current seven tax brackets for individuals to two: 10 percent and 25 percent, with a third 35 percent bracket resulting from a 10 percent surtax on those earning more than $450,000. The corporate tax rate would be lowered to 25 percent from 35 percent and the much-hated Alternative Minimum Tax would be repealed.

Although it is impossible in this space to provide a comprehensive listing or review of the Camp proposal, which is outlined in his 979-page bill, the devil is in the details. Here are 10 proposals that are bound to raise some eyebrows and keep the “chattering class” chattering for months to come.

• The mortgage interest deduction would be cut in half, from $1 million to $500,000 (current mortgages would be grandfathered in), limits would be placed on the exclusion of gain of a principal residence and the first-time home buyer credit would be repealed.

• Investment income would be taxed as regular earnings, although the first 40 percent would be exempt.

• New contributions to traditional IRAs would be prohibited. Instead, Roth IRAs, in which contributions are subject to immediate taxation, would become the preferred retirement option.

• Deductions for charitable contributions would be “streamlined,” as only 25 percent of taxpayers benefit from the current rules.

• The deductibility of certain advertising expenses would be limited to 50 percent of current expenses, with the remainder amortized over a 10-year period.

• The deduction for interest on education loans, qualified tuition and related expenses would be repealed, as would the deduction for personal casualty losses, medical expenses, moving expenses, tax preparation, alimony and energy-efficient commercial buildings.

• Tax credits for alcohol, biodiesel and renewable diesel used as fuel, electricity produced from certain renewable resources, as well as the energy-efficient home and appliance credit would also be repealed.

• The last-in, first-out method of inventory, as well as the lower of the cost or market method of inventory, would be repealed.

• Significant changes to the way S and C corporations and partnerships are treated under the tax code are proposed, as are changes in the way executive compensation is calculated.

• The tax-exempt status for professional sports leagues would be repealed.

For a full analysis of the bill, a 182-page discussion draft can be found here.

Although some folks might be ready to jump out the closest window after reviewing these proposals, most pundits declared the Camp package dead on arrival — at least for this year and in this Congress — while at the same time applauding the Michigan lawmaker for producing a credible alternative to a tax code that everyone agrees has gotten out of hand and needs to be “reformed” if not entirely replaced.

Who will lead the charge for tax reform next year depends not only on the outcome of the November congressional elections, but also on who succeeds Camp as chairman of the tax-writing Ways and Means Committee when he loses his gavel at the conclusion of this Congress because of Republican chairmanship term limits.

Although former vice presidential candidate and current House Budget Committee chairman Rep. Paul Ryan, R-Wis., is widely expected to take the helm of the Ways and Means Committee next year, the most he would say is that Camp’s proposal was a “terrific first step.”

Michael Sciulla established boating’s first federal political action committee and testified more than 30 times on Capitol Hill during a 28-year career at BoatUS, where he managed the organization’s government relations and public affairs operations while also serving as editor of its 650,000-circulation flagship publication.

Welcome to TradeOnlyToday’s premium content! To continue reading, please register now, for access to 10 free stories per month. Or subscribe, for unlimited access to all TradeOnlyToday content!

Click here to Register ... it's free!

Basic subscription: Registered members get free access to 10 premium content stories each month!

Not a member yet? Click here to Register!

Already a member? Click here to Login!

Subscribe ... for unlimited access!

Individual subscription: $29 for unlimited site access for one year.

Small Business subscription: $140 for unlimited site access for up to 10 members of a company for one year.

Corporate subscription: $300 for unlimited site access for all members of a company for one year.

You may close this dialog after seconds.

Comments

6 comments on “CAPITOL LOOKOUT: One person’s tax reform is another’s tax increase

  1. LARRY

    THE REPUBLICAN PARTY KEEPS DIGGING A DEEPER HOLES, MAKING MANY RECONSIDER TO VOTE REPUBLICAN AGAIN. MAKES YOU WONDER IF MADNESS, RELIGION, AND LARGE CORPORATE INTERESTS HAVE TAKEN OVER THE PARTY.
    REPRESENTING THE “WORKING CLASS” SEEMS TO BE A THING OF THE PAST WITH REPUBLICANS., SURE, LOTS OF GOOD SPOKEN WORDS COMING FROM WASHINGTON, AND OTHER STATES POLITICIANS, BUT THEN SALIVA IS CHEAP!!!
    WHAT ALSO WORRIES ME IS DEMOCRATS ARE NOT SOUNDING TO MAKE MUCH SENSE EITHER!

  2. Pay No Taxes

    As much as I’d like to say a tax credit is a redistibution of wealth it’s not. It’s a distribution of phony money printed by the reserve. It makes a hard earned dollar worth less. I didn’t realize Trade Only was an arm of MSNBC. Perhaps the author should dig his head out of the sand and look at the disaster in Washington now. Leaving the liberal progressive hacks in their now is better?

    Perhaps you should take a look at what the good conservative governors across our nation have done in terms of good paying jobs, balanced budgets, etc…despite Obama’s repeated attempts to create every possible disincentive to work.

    Happy boating until the liberal hacks make it unaffordable for even the middle class.

  3. Scott

    Good story. Mike’s stories may lean left at times, but as the last moderate republican on this earth, I think he makes some valid points (if you get over political affiliations). Keep in mind even Republicans aren’t lining up to support Camp’s proposal. Like all legislation, there is some good and bad. No one will argue our tax code needs fixing. Any elimination of the Mortgage interest deductions for boaters, however, needs to go hand in hand with the deduction for second homes and RVs. I’m tired of boaters being singled out and used by some as a whipping post for what they think is wrong in America. And for all of the grandstanding on this issue, the deduction for boats is a drop in the bucket compared to second homes…but will our legislators (elephants and donkeys) do the right thing?

  4. Jeff Erdmann

    Déjà vu!
    The Tax Reform Act of 1986 (TRA 86) a sweeping change to 1954 tax law renamed the Internal Revenue Code of 1986.
    Until the legislation passed, many doubted that it had a chance. Broadening the base and lowering the rates seemed a political impossibility. Special interests represented by lobbyists defended every deduction, few clients of the lobbyists supported lower tax rates.
    TRA 86 lauded the bill as tax simplification. Instead of many tax brackets, there were only two: 15% and 28%, and many deductions were removed from the IRC. Capital gains were taxed at ordinary income rates, eliminating the constant battle between taxpayers and the IRS whether capital gains treatment was allowed in various situations.
    A You Tube video of President Reagan signing the Tax Reform Act of 1986 tells all.
    http://www.youtube.com/watch?v=qM3cH9xiHMU#t=48
    If only I would have invested in the www 25 years ago I’d have some real tax problems!

  5. Michael Sciulla

    Jeff, many thanks for digging up and posting the Reagan signing ceremony. Hope some people will actually watch it.

    Of course, the stock market dropped nearly 25% on Black Monday 1987 just about a year after TRA 86 was signed into law.

    In Washington DC one must be especially mindful of the law of unintended consequences.

  6. Jeff Erdmann

    Been there done that!

    TRA 86 was a catalyst for the 1990-1991 recession that included a real estate collapse, causing the Savings & Loan financial crisis and the Resolution Trust to sell off troubled assets (now known as TARP).
    Congress needs to be careful when they tinker with the tax code!
    The 1986 Tax Reform Act spurred consumer spending, but hurt business. This Act repealed the investment tax credit, cut the value of depreciation allowances, and began treatment of capital gains as ordinary income. The resulting increase in business taxes curtailed investment and creation of new jobs. Entin(1991) estimated a $300 billion loss in investment from 1986-1991. This translates to approximately a one-percentage point drop annually in GNP, resulting in a reduction in the growth of employment and wages. The 1986 Act also imposed passive loss rules, effectively limiting tax deductions on real estate. The resulting collapse in commercial real estate and home values triggered the savings-and-loan crisis and the dramatic tightening of bank lending. This breakdown in bank lending is probably what caused the change from feeble growth
    to recession (Entin, 1991).
    The 1990-1991 recession was not a typical inventory recession.
    Hyman (1991) stated that the source of this recession was the amount of leverage in the system (Wait until next year, 1991). The 1980s was a decade of enormous speculative surge in the price of real estate and other assets.
    A large part of this was made possible by the tremendous growth in debt financed by the country’s financial institutions. The decline in the value of commercial real estate has affected not only commercial construction–it has weakened financial institutions.

    http://www.sbaer.uca.edu/research/allied/2004_maui/legal_ethical_regulatory_issues/14.pdf

Leave a Reply

Your email address will not be published. Required fields are marked *

Comments are moderated and generally will be posted if they are on-topic and not abusive. For more information, please see our Comments Policy.

Vote Today

Will you be attending IBEX and the Fort Lauderdale International Boat Show?

View Results

Loading ... Loading ...

Search Boats for Sale

Length
Year
Price

Login to Trade Only Today

Lost Password