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corporate tax rate would be lowered to 25 percent from 35 percent and the much-hated Alternative Minimum Tax would be repealed.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limits would be placed on the exclusion of gain of a principal residence and the first-time home buyer credit would be repealed.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.