Earlier this year, as House Republicans began strategizing for the November elections, conservatives badgered their leaders to unveil a detailed plan to overhaul the U.S. tax code. The GOP has vowed to lop 10 points off the top tax rate, and many House freshmen were eager to make that promise a centerpiece of their first reelection campaigns.
It fell to Rep. Dave Camp (R-Mich.) to convince them that tax reform, like so many things in Washington, is more complicated than it might seem.
In a series of meetings, the chairman of the tax-writing House Ways and Means Committee gently explained that lowering rates would explode the budget deficit unless Republicans also proposed pruning back expensive credits and deductions that benefit millions of ordinary people. The break for home mortgage interest, for example, or the $1,000 child credit. Or that stalwart of GOP orthodoxy, the 15 percent rate for capital gains.
Releasing such a plan in an election year would invite attack by Democrats, Camp said, and could forever poison the well for reform. His reasoning prevailed. And Camp, a low-key 11-term veteran, managed to unite his often impatient caucus behind his own slow but methodical drive to make a landmark revision of the nation’s tax laws a legislative reality, rather than just another campaign talking point.
Now, as Washington bickers over whether to keep existing tax policy a bit longer, Camp is focused on finishing the job. Leaders in both parties say they want 2013 to be the year Congress finally enacts a simpler, fairer tax code. Last week, Camp unveiled legislation laying out his principles for reform and establishing deadlines to force action sometime next summer.
(On Saturday, Camp announced that he had been diagnosed with a form of non-Hodgkins lymphoma, but said it is highly treatable and will have minimal impact on his schedule.)
Analysts predict this tax reform will be much harder than the last major overhaul, under Ronald Reagan in 1986. Then, there was broad agreement to close obvious loopholes that were abused by businesses and investors and use the extra cash to lower rates for individuals. Today, lawmakers confront a code strewn with popular deductions that serve important social goals and powerful interests.
In 1986, “there were giant loopholes that were just ripe for closing,” said Syracuse University economist Leonard Burman, who worked on reform in the Reagan Treasury Department. Today, “there is again a broad perception that the tax system is broken. But people’s ideas about the right kind of tax system vary dramatically.”
Camp and his Senate counterpart, Finance Committee Chairman Max Baucus (D-Mont.), already are confronting some of the thorniest issues: Should the nation subsidize home mortgages, retirement savings and employer-provided health insurance? Should wealthy investors pay lower rates on their income than working people do? Is it fair that half of all households currently owe nothing to the Internal Revenue Service?
Then there’s the politically explosive question of whether to generate extra cash to help rein in the national debt, as Democrats and bipartisan budget experts demand. Most Republicans are hostile to that idea, but Camp has shown some flexibility. Last fall, as a member of the deficit-reduction “supercommittee,” he entered talks with Baucus over a reform plan that would have raised $600 billion over 10 years in exchange for significant reductions in Social Security and Medicare spending.
According to a senior aide involved in the talks, the men broached the sensitive subject of how to sell the plan to their respective parties. To Republicans, they could emphasize that $600 billion in new tax collections would be far less than most other bipartisan deficit-reduction proposals. For Democrats, they could add various fees, interest savings and other provisions to push the total revenue figure closer to $1 trillion.
Meanwhile, Baucus aides became convinced that they could write a tax plan that would generate new revenue from economic growth — the Holy Grail for Republicans. “We’ve done enough to know it will work,” the aide said.
The supercommittee disbanded without agreement. But “we did come close,” Baucus said. That framework is “still kind of alive,” Camp said, continuing under the radar as policymaking otherwise grinds to a halt to await the election outcome on Nov. 6.
“Dave, all he’s looking for is a solution,” Baucus said. “Revenue is obviously a charged issue. And he’s working with that, given his beliefs and the politics of the House. But he’s a pragmatist. He wants solutions.”
‘A results-driven chairman’