By Thomas Fletcher
Today, House Ways and Means Chairman Dave Camp released his long-awaited discussion draft proposal on comprehensive tax reform. After years of avoiding the issue and watching our tax code become bloated and overly complicated, the Chairman has taken a good first step in putting out a proposal that gets the discussion started of finally overhauling our tax code. In his proposal, Camp simplifies the code, brings down rates for individuals and corporation, and reduces waste. The steps outlined in his report are a welcome roadmap in reforming the US tax system to help kick start the economy
INDIVIDUAL TAX REFORM
One of the keys to tax reform is bringing down the tax rates for Americans, so that individuals can save, spend, and invest. Chairman Camp takes the current law, which has seven different brackets and rolls them into three, 10 percent, 25 percent, and 35 percent. The Joint Committee on Taxation estimated that this will let middle class families keep more than $1,300 than they would otherwise. Allowing families to keep more of their hard earned money is key and imperative to any tax reform plan.
CORPORATE TAX REFORM
Another highlight in Chairman Camp’s tax reform package is corporate tax reform. American small businesses and corporations face one of the highest tax burdens in the world with rates as high as 39.6 and 44 percent respectively. Since we are now in global economy with dozens of foreign competitors, the country cannot afford to be sitting on the sidelines as businesses take their talent, and money overseas. To incentivize and attract domestic businesses to stay and grow here in the US, Camp’s plan calls for a reduction in the corporate tax to 25 percent.
Chairman Camp should have gone further on corporate tax reform by shifting from a worldwide tax plan to a territorial tax plan. To learn more about why the U.S.’s current worldwide tax system hurts our international competitiveness, check out AFPF’s “Need to Know” on International Corporate Taxes: The “Territorial” vs. “Worldwide” System.
CLEANING UP THE CARVE OUTS
One of the problems with the current tax code is that it’s currently littered with hundreds of loopholes and deductions that complicate and confuse the average citizen filing while favoring the few and privileged. Chairman Camp proposes to eliminate 25 percent of the current loopholes that clutter the tax code, many of them are narrowly targeted. Carve outs that Camp proposes to cut include: depreciated benefits related to corporate jets, prohibiting tax deductions for costs incurred by illegal businesses, special tax deduction for the purchase of primes seating tickets at college athletic events.
Chairman Camp also falls short here—although he eliminates a host of renewable energy carve outs, it doesn’t eliminate carve outs altogether. For instance, he winds down the credit for current beneficiaries of the crony wind Production Tax Credit (PTC), to 1.5 cents per kilowatt hour subsidy until 2024
Tax reform is the key to getting the American economy back on the right track. This report while not perfect is step in the right direction. The Joint Economic Committee on Taxation says that tax reform will add $3.4 trillion to the economy and create 1.8 million private sector jobs. That would be a massive boon to the American economy, whose performance the last several years has been sluggish and under performing. Americans for Prosperity calls on Congress to join the conversation on reforming the tax code started admirably by Dave Camp.