GUEST EDITORIAL
GOP tax plan, DOA
3/1/2014The Republican tax plan unveiled in the House this week ensures there will be no tax reform in the near future.
It refuses to ask for greater sacrifice from the rich to bring in desperately needed revenue for rebuilding the country and improving education, which Democrats correctly regard as a huge missed opportunity. Hard-line conservatives insist that changing the tax code should include slashing revenue, which the proposal avoids.
As a result, leaders of both parties have made clear there will be no vote on the plan, prepared by Rep. Dave Camp (R., Mich.), chairman of the House Ways and Means Committee. It is a mere conversation starter, and until Republicans realize the tax code is inadequate to meeting the nation’s growing needs, it will remain nothing more.
The plan, intended only to simplify the tax code rather than redistribute the burden, reduces the number of tax brackets from seven to three. Low-income taxpayers would pay a 10 percent rate, those in the middle would pay 25 percent, and families making $450,000 and above would pay 35 percent instead of the current 39.6 percent.
In many cases, that represents a tax cut. To make up for the loss in revenue — because the plan aims to be revenue-neutral — many deductions and breaks are eliminated. But ending those breaks just to reduce rates means the savings can’t be used for important expenses in the future, which is a GOP goal.
One big break that would be affected is the mortgage-interest deduction. By limiting it to $500,000, the plan would hurt many middle-class families that must borrow more than that to afford a house in expensive markets. Even worse, it would repeal the deduction for state and local taxes, a deliberate attempt to make it more difficult for “blue” states to provide the services and safety-net protections they have decided are necessary.
Mr. Camp’s plan is open about this intention: “This deduction redistributes wealth to big-government, high-tax states from small-government, low-tax states.” In fact, those states do a much better job of helping their most vulnerable citizens, improving education and mobility in big cities, and benefiting the country as a whole.
The politically driven aim of keeping the amount of overall revenue unchanged undermines virtually every useful idea in the plan. It reduces loopholes and special breaks for corporations, but then uses that revenue to lower the corporate tax rate from 35 percent to 25 percent.
Capital gains would finally be taxed at the same higher level as ordinary income. But 40 percent of those gains would be excluded from taxation, producing an effective cut for those who live on investment income. If anything, the plan is likely to bring in less revenue in later decades, as the corporate cuts mount up.
Just after Mr. Camp’s announcement, President Obama proposed a better idea: cutting business tax breaks to pay for $300 billion worth of construction on roads, bridges, rails, and tunnels.
The nation’s tax system is full of giveaways and unnecessary preferences, as Representative Camp’s plan recognizes. But the goal should not be a system that leaves the wealthy undertaxed, doing nothing to reduce income inequality. The country’s problems are far bigger than a complicated Form 1040.