The sensible overhaul proposed by Michigan’s Rep. Camp should give both Republicans and Democrats a starting point.
Of all the tasks before Congress — funding the government, say, or naming post offices — tax reform is probably the most necessary and most thankless. So it is a pleasant surprise that the Republican chairman of the House tax-writing committee has produced a common-sense tax-code overhaul with bipartisan appeal.
It would tax the rich more and close many special-interest loopholes. It would create jobs and spur economic growth. And it would retain progressivity.
So why is everyone bad-mouthing it? At least two reasons. One, everyone agrees it stands no chance of passage, so there’s no cost to piling on. Two, everyone agrees that tax reform is good in theory, yet bad in practice: No one wants to give up their existing deduction or loophole to get there.
Nevertheless, the proposal from Rep. Dave Camp of Michigan is worthwhile, if only as an illustration of an encouraging new strain of conservative thinking. It goes something like this: We still don’t like tax increases, but sometimes they are necessary; we are still the pro-business party, but special-interest deductions are inherently unfair; and while we still disdain class warfare, certainly the top 1 percent can afford to pay more.
What Camp has done is produce an intellectual blueprint that both parties can debate. His likely successor as the House’s chief tax writer, Rep. Paul Ryan of Wisconsin, had a hand in drafting the plan and is already sending positive signs of wanting to advance it.
President Obama should find plenty to like, notably Camp’s offer to lower marginal rates on the bottom 99 percent and to streamline the entire tax code. He would simplify a hopelessly convoluted tax system by compressing seven tax brackets into three — 10 percent for those earning as much as $71,200; 25 percent for almost everyone else, and 35 percent (down from 39.6 percent now) for the highest paid.
Even more important to Democrats, Camp would begin to tax investment gains (after excluding the first 40 percent) as ordinary income, up from 20 percent now. For many people with long-term capital gains and dividends, this would translate into a slight tax increase.
It’s just one way that Camp focused his tax-raising scope on the top 1 percent. He would also phase out some deductions for high-wage earners, including employer-provided health insurance and interest on municipal bonds. Another biggie, mortgage interest, would be eliminated on home loans above $500,000.
Corporations would also get a tax cut, to 25 percent from today’s top rate of 35 percent. Only U.S. income would be taxed, ringing in a welcome switch to territorial taxation, which the rest of the world follows.
As with individual rates, the lower corporate taxes come with a catch: Some cherished deductions would go away. Depreciation breaks would be less generous. Moreover, the biggest, most systemically risky financial companies would be hit with a special tax on assets more than $500 million to reimburse taxpayers for crisis-era bailouts.
The Joint Committee on Taxation says Camp’s blueprint would increase real gross domestic product by a healthy $3.4 trillion over the next decade. If so, then the plan would actually raise $700 billion in new revenue. This alone should give reluctant Democrats reason to support the plan.
The Opinion section is produced by the Editorial Department to foster discussion about key issues. The Editorial Board represents the institutional voice of the Star Tribune and operates independently of the newsroom.