There has long been talk about the need for an overhaul of the tax code. The House of Ways and Means has put forward a blueprint for the tax reform, but it is just the beginning of the changes in the tax code. This initial blueprint begins the process of making proposals, debating, reviewing and selecting changes. DC Decoder discusses the proposal and what it could mean for taxpayers:
“‘In general terms, it’s a pretty risky exercise’ to make public something this detailed where it can be shot at in an election year, says Joseph Minarik, chief economist in the White House Office of Management and Budget during the Clinton administration. On the other hand, he said, ‘You can start a debate, you can put an idea out there that will begin to become a magnet for further ideas and discussion.’ That was what happened in the run-up to America’s last big tax reform under President Reagan in 1986, he said.
“Here are key elements of the Camp plan:
- The plan collapses the current seven individual tax brackets to two: a 10 percent tax rate and a 25 percent tax rate – a significant drop from today’s top rate of 39.6 percent.
- A new 10 percent “surtax” would be levied against incomes of the wealthiest earners.
- The corporate tax rate would be cut to 25 percent, down from 35 percent.
- The standard deduction and child tax credits would be increased, while 40 percent of long-term capital gains and dividends would be exempt from tax – the rest taxed as ordinary income.
“Other deductions, exemptions, and credits would be trimmed to help pay for the simpler system, whose ‘guiding principle is that everyone should play by the same rules,’ as Mr. Camp put it Wednesday.
“Overall, the Camp tax reform proposal remains progressive – with the rich bearing a greater burden than the less well-off. And it generally maintains the current distribution of the tax burden among the wealthy and poor. It is also deficit neutral, according to the nonpartisan, congressional Joint Committee on Taxation – neither adding to nor reducing the deficit. The Joint Committee also says the reform would spur 1.8 million new private-sector jobs and grow the economy by about 20 percent over 10 years.”
The draft is a major step towards the achievement of a simpler and more effective tax code. Some of the changes, though, such as a reduction in the corporate tax rate, are not expected to see opposition. DC Decoder allows a glance into the important particulars of the blueprint:
“Analysts point to several policy kernels that both parties could digest: for example, curbing tax deductions at the high end. The plan calls for reducing the cap on allowable home mortgage interest from a principal of $1 million down to $500,000. That satisfies on many levels: preserving this cherished tax break; reducing it to help pay for a simpler tax system; and making it progressive – so that the wealthy bear a greater burden. The plan also adopts recommendations from the bipartisan working groups to consolidate a series of complex education tax benefits so that families can more easily afford college.
“Camp and others point to the urgent need for tax reform as an economic driver, as a way to keep America competitive in the world, and to cut the complexity (he calls it “the junk”) of the system itself.”