Representative Dave Camp (R), the chairman of the House Ways and Means Committee recently released his proposal for tax reform creatively entitled the Tax Reform Act of 2014. I’ve linked an article to the general provisions of the proposal below and granted, there are some things I like about it; but this post isn’t the right place for me to go into full detail about Chairman Camp’s proposal. If anything, it reveals a deficiency on the left side of the aisle that needs immediate attention.
Let’s start with the basics. Our tax code is an unworkable behemoth of deductions, exemptions, loopholes, contradictions, and confusion. It’s pages outnumber those in the bible and it feeds a cottage industry of accountants and lawyers who shift through the muck to ensure a random line item doesn’t cost their clients godless sums of money. But if complexity and inefficiency are the problem, why then is tax reform so difficult to achieve (the last major overhaul for example was in 1986)?
To answer that question, one need only examine the following list of common reform priorities.
- Lowest possible tax rates
- Highest possible revenue
- Simplicity and ease of filing tax returns
- Minimizing tax avoidance
- Eliminating unnecessary tax expenditure
The problem with this list is that going about these priorities can mean different things to different people and the result often carry significant repercussions for other policy-areas depending on whose view is being propagated. Conservative rhetoric has dominated the tax discussion in recent years and often involves something of the following.
- Collapsing the number of tax brackets to somewhere around three in usual proposals
- Eliminating or curtailing most tax expenditure including relatively well known items like the Child Tax Credit, EITC, State and Local Tax Deduction, etc.
- Cutting the Corporate Tax Rate
- Eliminating the AMT
- Lowering the Estate Tax
While there’s nothing outrageous about these proposals, they do lead to a number of significant issues for progressive lawmakers. First, the proposed rate cuts often seem to cut taxes far more for higher income earners thereby shifting more of the tax burden to lower income earners. Tax rate consolidation, depending on how its done, can damage the integrity of a progressive tax system; indeed many tax reform proponents are admirers and advocates of the flat tax, a policy that is unmistakably regressive. Finally (and this is the detail that can politically make or break reform proposals), the mass wipe out of certain deductions can also harm lower income earners by removing some incredibly useful tax exemptions. For example, Dave Camp’s proposal actually cuts the amount of the Earned Income Tax Credit, a policy that’s been praised even by conservative economists for its efficient anti-poverty aid. None of this is to forget that these proposals usually include other toxic items like cutting the estate tax, slashing corporate taxes without even touching the discrepancy between capital gains and regular earnings, all while stubbornly clinging to revenue neutrality.
Granted, even these proposals sometimes contain items that liberals can like. Dave Camp’s proposal eliminates many terrible loopholes and even includes a financial services tax. That’s why these proposals intrigue us as much as they do; they offer crucial opportunity for the left to come forward with a robust alternative for tax policy that can orient the good in previous proposals towards a more progressive budgetary vision.
The following is a good, but by no means comprehensive, list of liberal tax reform proposals.
- Tax capital gains and income at the same rate
- Strong Estate Tax
- Crackdown on Foreign Tax Avoidance
- Alternative Tax Opportunities for Policy Purposes: Carbon Tax, Financial Services Tax, Land Tax, etc.
- Retain and Expand tax credits that offer a fundamental policy purpose: child tax credit, research, green-energy, EITC, state and local, energy, college, etc. (to name a few) while eliminating any that don’t; consolidate credits that serve a similar function
- Long term rate structure should strive to be as progressive as is possible; burden of payment should remain with the rich and be strengthened by including surtaxes on the highest income levels
- Possible Progressive Structure on Corporate Tax Rates while aiming to lower tax rates in the long term on low income earners, middle income earners, as well as small/medium size businesses in comparison to their more affluent counterparts
At the end of the day,the question we must ask ourselves is whether achieving simplicity and clarity only lend themselves to a vision resembling Congressmen Camp’s? That simply isn’t the case. The tax code isn’t complex because it has too many brackets; it’s complex because of countless amendments, exemptions, deductions, etc. that were placed in the tax code year after year for random activities or entities that ultimately serve no public purpose. Get rid of those, simplify the rest, and you can still end up with a code capable of being used as a powerful policy instrument and proof that stripping the code of junk doesn’t mean getting rid of the things that constitute genuinely good policy.
This isn’t the last you’ve heard from me on tax reform, I promise!
Basic Outline of the Camp Proposal: