Rep Camp’s New Tax Plan Has a Structural Problem

February 26th, 2014 at 6:46 pm

Dave Camp (R-MI) is the top R tax writer in the House, and he’s got a big new tax reform plan out today.  It has a political problem as in it’s not going anywhere anytime soon.  But it’s worth learning more about and includes some venerable ideas.  Where it goes wrong, as you’ll see, is on revenues. Over at the NYT Economix blog.

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4 comments in reply to "Rep Camp’s New Tax Plan Has a Structural Problem"

  1. wkj says:

    Two strong points of the Camp plan that you do not mention are: (i) the proposed expansion of the standard deduction, and (ii) the proposed elimination of the alternative minimum tax (AMT). I would hope that both of these changes could be retained in any legislationthat is ultimately enacted.

    An increase in the standard deduction would provide real simplification for tens of millions. Also, for most of those people, the higher standard deduction would moot the effect of the disallowance of state taxes as a deduction.

    The repeal of the AMT would not affect as many people but would also provide real simplification for millions and would also eliminate some truly weird marginal rate results. I keep an Excel worksheet with projections of my 2014 tax liability. Because of the AMT, it shows that, with my projected income and deductions for 2014, my marginal federal income tax rate (applicable if I receive an additional $1 of income or pay an additional $1 of AMT deductible expense–such as a charitable contribution) is 47.5%. Briefly, an additional $1,000 of ordinary income in 2014 would: (i) directly increase my AMT by $260 (26% of the $1,000), (ii) reduce my AMT exemption by $250 (25% of the $1,000) thus adding additional AMT of $65 (26% of the $250, or 6.5% of the $1,000), and (iii) further increase my AMT by $150 (15% of the $1,000) by pushing $1,000 of my qualified dividend income out of the 0% bracket into the 15% bracket.

    To recap, 26% + 6.5% + 15% = 47.5%. The same calulation runs in reverse if I increase my 2014 charitable contributions by $1,000, i.e., a tax saving of $475.00 or 47.5% of the incremental contributions.

    I am not griping about the amount of my tax, but this degree of complexity (which rewards the socially useless activity of monitoring one’s income tax liability) and a marginal rate of 47.5% are just nuts.

    • Jared Bernstein says:

      Good points–much in there I didn’t get into in my short piece, which was focused on rev shortfall–by far, its most serious shortcoming. But the expansion of the std deduction is as you say, a great simplifier for many.

    • Fred Donaldson says:

      Camp increases standard deduction, but eliminates personal exemption of $3,900 per individual. It is a wash, unless you will be eligible for the new 25% bracket.

  2. smith says:

    How is there any redeeming value to a tax plan that lowers rates on the rich and corporations? It’s a double tax cut for the very rich since their income is mostly derived from corporations (bonds, capital gains, dividends).

    Why is it a good idea to allow corporations to repatriate foreign profits thereby encouraging investing overseas in low tax countries, draining revenue, and costing jobs, not to mention lack of global labor and environmental protection?

    Why is there any value in a simplified tax structure, especially if it results in lower rates for the rich? How did the similar yet not nearly as radical Reagan Bradley tax cut which took away more progressive rates help anyone who believed a more equitable distribution of income?

    How will lowering top rates in general get us back to the needed confiscatory marginal rates of Eisenhower (90% over $2 million) which is possibly the only accepted and proven way to discourage excessive pay in a free enterprise system?

    How will a huge lowering of taxes for the upper 10% but below 1% of society help forge a coalition for progressive change (equitable distribution of income, taxing the rich for government programs needed)?

    How will lower taxes for the middle and lower class help create a society when the government is starved for cash for education and infrastructure upon which they depend more than the rich?

    Why are there no competing proposals from the left garnering as much attention?

    Most telling of all is the income a new proposed 10% would exclude (Romney and the 1% couldn’t be happier)

    Saw this posted somewhere else in a comment:
    The Washingont Post
    “In addition, the plan would impose a 10 percent surtax on certain types of earned income over roughly $450,000 a year. The surtax would hit many salaried professionals, such as attorneys and accountants, while dodging farmers and manufacturers — as well as the super-rich, whose income often is derived primarily from interest and investments.”