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February 20, 2014 7:17 pm
The top Republican tax-writer in Congress will release a plan to revamp the entire US tax code, in a move that will be closely scrutinised across corporate America and presents both peril and promise for his party heading into the November midterm elections.
Dave Camp, the chairman of the House Ways and Means committee, will next week release a draft tax reform plan that represents the most far-reaching overhaul of the US tax code since 1986 under president Ronald Reagan. It lowers tax rates for both individuals and corporations and pays for the effort by scrapping or limiting a wide range of popular tax breaks.
Mr Camp’s decision to release his tax plan clashes with an effort by Republican House leaders to remove contentious issues from the party’s agenda ahead of the November mid-term elections.
The proposal is likely to become a focus of criticism from Democrats, who will attack the tax rate reduction for mainly benefiting wealthy Americans. While corporate America welcomes the effort as key to speeding up economic growth and making the US more competitive, sectors losing their preferred tax breaks are also likely to cry foul.
“We can choose to have a real discussion about what tax reform can mean for American families and employers or we can choose to cower to special interests and maintain the status quo,” he said in a memo to colleagues on his committee this week obtained by the FT. “Clearly, I choose the former.”
Devin Nunes, a senior Republican on the committee, said he encouraged Mr Camp to move ahead and was “excited” about the plan. “All elected officials owe it to the people to put their plan for economic growth on the table and it is no secret that we have to have tax reform to compete globally,” Mr Nunes said. “So to sit around and do nothing is the wrong thing to do.”
Details of Mr Camp’s proposal remained under wraps. House Republicans have aimed at cutting the top rate for companies and individuals from 39.6 per cent and 35 per cent respectively to 25 per cent for both. But it is unclear whether Mr Camp has been able to keep that level of ambition, meaning the rates could end up being higher.
Even if Mr Camp’s plan moves ahead in the House, its fate in the Senate is far from clear. Mr Camp spent months discussing tax reform with Max Baucus, his Democratic counterpart in the upper chamber. But Mr Baucus recently left his post to be US ambassador to China, and Ron Wyden, his successor, is unlikely to be in any rush to take up such a sweeping bill, though he has supported broad tax reform in the past.
The Obama administration has also backed the notion of tax reform, including a plan to lower the corporate rate to 28 per cent, but the shape of a Democratic plan could be very different than Mr Camp’s.
“The key to all of this is how much will the White House weigh in. Something this important and this big will have to be bipartisan and White House leadership to be able to bridge the inevitable divides and that’s an open question,” says Doug Holtz-Eakin, president of the American Action Forum, a right-leaning think-tank.
A longtime congressional staffer familiar with Mr Camp’s plan said the main reason to get the plan out – over the heads of a reluctant leadership, if need be – was to lay down a marker for future debate over tax reform in 2015 or 2016. Mr Camp is due to step down from the Ways and Means chairmanship at the end of the year.
“Privately, [Republican leaders] might be troubled by the fact that he is putting it out but from Chairman Camp’s point of view, he does not have much time left,” the aide said.
Politically, the focus of Republican leaders is very much on the November election. After failing to gain control of the Senate twice, in the 2010 and 2012 elections, largely because of the choice of Tea Party-backed candidates in key states who were easily demonised by their Democratic opponents, Republicans are desperate to not take any big risks.
As in 2010 and 2012, Republican are favoured to retake the Senate, with a RealClearPolitics analysis published on Thursday suggesting that the Democrats could lose up to 14 seats unless Barack Obama’s popularity recovers. To gain a majority in the 100-member chamber, Republicans would need to win six seats and lose none. Their main strategy has been to avoid big fights – such as over the debt ceiling, focus on the botched rollout of Mr Obama’s 2010 healthcare law and stymie the president’s domestic initiatives such as raising the minimum wage. But for all its dangers, tax reform could offer a chance for Republicans to run a more positive platform on the economic front.
“There are some whose only counsel is to say nothing, let the Affordable Care Act melt down, get elected in November,” Mr Holtz-Eakin says. “I think there’s a lot of reason to question that as a strategy.”
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