Policy: Economy

GOP tax plan creates two brackets, lowers rates and eliminates loopholes

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Politics,Congress,Susan Ferrechio,Taxes,PennAve,Economy,Budgets and Deficits,Law

House Ways and Means Committee Chairman Dave Camp Wednesday unveiled a comprehensive tax reform plan that would lower rates, broaden the spectrum of taxpayers and greatly simplify the tax code system, shrinking it by 25 percent.

“This legislation does not reflect ideas solely advanced by Democrats or ideas solely advanced by Republicans, nor is it limited to the halls of Congress,” Camp said in a statement. “Instead, this is a comprehensive plan that reflects input and ideas championed by Congress, the Administration and, most importantly, the American people. In other words, it recognizes that everyone is a part of this effort and can benefit when we have a code that is simpler and fairer.”

Camp's plan comes as leaders in both the House and Senate have suggested it will be difficult, if not impossible, to embark on a tax reform debate in 2014, a critical election year when big legislation often gets sidelined.

House Speaker John Boehner, R-Ohio, said prior to the release of the plan that it would “start the conversation,” on tax reform, but he would not commit to a vote on the legislation.

In the Senate, both Majority Leader Harry Reid, D-Nev., and Minority Leader Mitch McConnell, R-Ky., said they do not believe the Senate will vote a tax reform bill this year, although Senate Finance Committee Chairman Ron Wyden, D-Ore., is working on his own proposal.

Camp is moving ahead nonetheless, and his proposal has so far drawn both praise and criticism.

House Budget Committee Chairman Paul Ryan, R-Wis., who may succeed Camp at the Ways and Means helm next year, called the proposal, “a terrific first step toward a much-needed debate over how to best reform the tax code.”

But many are likely to find fault with it.

For instance, Camp’s plan reduces the mortgage interest deduction from $1 million currently to $500,000 by 2018 for new mortgages. Camp said the move would impact only 5 percent of homes now on the market, but lawmakers from districts with high home prices are unlikely to support the provision.

And the plan rids the tax code of many smaller deductions, such as the ones for state and local taxes.

“Any proposal that eliminates the deduction for state and local taxes, as the Republican plan would do, is dead on arrival,” Sen. Chuck Schumer, D-N.Y., said.

Camp is also likely to field criticism from professional sports teams, which would lose their tax exempt status under the proposal.

Camp’s plan does away with the seven-bracket tax code and shrinks it to a two-bracket structure of 10 and 25 percent.

Under current law, tax rates range from 10 percent on taxable income at $9,075, to 39.6 percent on income over $406,750.

Camp’s plan would lower the corporate tax rate from 35 percent to 25 percent, a move proponents say will invigorate the economy and create jobs.

The proposal would simplify and increase standard tax deduction rates to $11,000 for individuals and $22,000 for married couples.

Camp said that the simplified deduction provision would mean that 95 percent of tax filers would no longer have to itemize tax deductions and would end up with more money — approximately $1,300 for a family of four earning $51,000.

White House spokesman Josh Earnest praised Camp's plan to close tax loopholes but criticized the elimination of the Earned Income Tax Credit for low-wage workers, which President Obama hopes to broaden.

"The president believes that our tax system should reward hard work and one way we can reward hard work is to extend and expand the EITC," Earnest said.

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