What Dave Camp’s Tax Reform Proposal Tells Us About Our Political System

Most people, until a few days ago, hadn’t heard of Dave Camp, the Republican chairman in charge of the House Committee on Ways and Means. That powerful committee has, among other things, jurisdiction over Social Security, Medicare, unemployment bennies, food stamps (TANF), and federal tax policies.

And regarding those tax policies, the committee chairman has been working on tax reform for a long time. This week, to the chagrin of many Republicans in the House and elsewhere, Dave Camp, who will soon be term-limited out of his continuing chairmanship of the committee, released his work product, the Tax Reform Act of 2014. And, somewhat surprisingly, some on the left are taking it seriously, even if it is revenue neutral and has other flaws. But not so surprisingly, partly because some on the left can take the proposal seriously, is that the usual money-holding suspects on the right are pooh-poohing it.

You can see the details of the proposal all over the place (here is a relatively thoughtful conservative critique), but liberal commentator Jonathan Chait began his short analysis of the plan by saying that Camp’s tax-reform proposal,

does something remarkable: It actually reforms the tax code. It doesn’t use the pretense of reform to shift the tax burden off the rich, as Republican “tax reform” plans usually do, and it does not use hand-waving to gesture in the direction of reform without following through. Camp has actually plunged his hands into the guts of the tax code and pulled out item after item. It may be the most impressive and ambitious domestic policy proposal crafted by a major Republican in a generation.

Chait notes how folks like the writers of The Wall Street Journal editorial page have “spent decades building a shrine to the spectacular wrongness of supply-side economics,” and then he gives Camp credit for not championing that spectacular wrongness:

The evidence suggests that cutting tax rates, financed by deficits, does little or nothing to spur economic growth. But Camp’s plan doesn’t do that. It instead reduces tax rates by eliminating preferences in the tax code. Subsidies for home mortgage debt and employer-sponsored insurance, among others, would be radically scaled back. And eliminating these kinds of favoritism encourages workers and businesses to instead follow market signals, and likely to make more market-friendly decisions.

Of course, Chait, as a liberal, notices all kinds of things wrong with Camp’s plan. Camp, after all, is a Republican, so it is no surprise that no new revenues will be raised if his plan were to become law, or that “oil drillers” are taken care of while “green energy” suffers. But Chait also points out something in Camp’s plan that has pissed off Wall Street banksters:

His plan would impose a new fee on large banks (which enjoy an implicit subsidy by virtue of being so large they’re apt to receive a bailout if they fail) and caps the value of tax deductions, both goals embraced by Obama. It eliminates the carried interest loophole. It sets the top tax rate at 35 percent, not the fantastical 25 percent rate proposed by Mitt Romney, Paul Ryan, and other Republicans. Camp is actually committed to the goal of reforming the tax code in a way that maintains (rather than reduces) revenue levels, and holds the relative burden on the rich and poor constant.

The reaction to this part of Camp’s legislation is at once predictable and disturbing. Just look at this headline from Politico yesterday:

Wall Street threatens GOP on bank tax

First line: “Wall Street is warning Washington Republicans: The money spigot is turning off.”

Then: “Rep. Dave Camp’s tax proposal — which jacked up taxes on banks and threatens the bottom line of big bankerssome major private equity players in New York — has infuriated donors in high finance.”

As I say, that reaction is not surprising. But it ought to disturb all Americans, including Tea Party Republicans, whose 2009 movement began, at least ostensibly, as a populist reaction to the bailout of the financial industry, a group of greedy folks who helped wreck the economy. None of us should put up with the kind of extortion suggested by that Politico headline. None of us should tolerate the idea that people with lots of money can buy our politicians like they were buying shares in a widget company. None of us. This is our democracy we are talking about, for God’s sake.

The Politico article continues:

Lobbyists for Bank of America, Goldman Sachs and JPMorgan and others are meeting privately with lawmakers to explain what the bank tax would cost and how it would function.

Big banks want to turn Republicans against the bank tax. The situation puts the party at risk of seeing a reliable source of campaign cash dry up right in the middle of a critical election year.

And:

Without Wall Street, Republicans risk their coffers emptying. The securities and investment industry is the largest contributor — besides candidate committees — to the National Republican Congressional Committee this cycle, directing $3.5 million to the party committee, according to the Center for Responsive Politics. In the 2012 election cycle, the financial services industry ponied up nearly $9.9 million.

Let’s be clear: Democrats, most of whom favor campaign finance reform, also take money from rich people. They have to, if they are to survive in this money-driven, anti-democratic system. But all of us, even the most rabid Tea Party “patriot” out there, ought to get angry over what money has done and is doing to our political system. An earnest Republican comes along with some ideas that are not completely based on phony trickle-down economics, and he, or rather his proposal, is shot dead on the spot by people whose guns don’t shoot bullets but big bucks.

Let me leave you to contemplate what Roll Call’s David Hawkings said about what the new reform proposal, not even considering its policy ideas, will do:

The Camp bill may be properly cited as The Tax Lobbyists’ Full Employment and Economic Stimulus Act of 2014.

Even though the measure is highly unlikely to make it onto the House floor — and will struggle to get a majority from the roster of 23 Republicans and 16 Democrats during its not-going-to-be-scheduled-anytime-soon markup at Ways and Means — law firms and K Street shops will generate countless billable hours just by parsing the bill’s language and coming up with strategies for preserving all the niche deductions, exclusions and exemptions that have only theoretically been placed in jeopardy.

If those lobbyists didn’t have connections to moneyed interests who give tons of dough to our politicians, and if our politicians worked in a system where they didn’t depend on rich people giving them tons of dough to get elected, then our politicians perhaps would properly weigh the input of those lobbyists, rather than give them all the influence that money can buy.

And shame on us—all of us—for putting up with it.

7 Comments

  1. I suspect all readers of this blog would agree that actual tax reform will never happen. Micromanaging the tax code is the principal recreation in Congress and without that, what would they do with all that time? (And, without the influence that ability brings with it?)

    I did the form 1041 tax return on my sister’s qualified disability trust this week and was surprised to find that despite pretty good dividends earned last year, zero tax was due. It seemed like there ought to be some because, unlike the individual tax, trusts have no standard or personal deductions. Turns out, most of the dividends were “qualified dividends”. That means they are treated the same as capital gains and under a certain and rather high cap of earnings, the first $12,500 isn’t taxed at all.

    The tax code is full of stuff like this. The thing has evolved over the years and for some reason, as in this case, it favors investment income over income from, er, actually working. Isn’t that odd?

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    • About as odd as our money-driven political system.

      There is some rationale for favoring some kinds of investment income, obviously. But there is absolutely no justification for giving banksters on Wall Street the kinds of breaks they get in the tax code. Much of what they do, as far as I’m concerned, adds no real value to the system. And speaking of odd, what kind of system is it that handsomely rewards folks who don’t add much, if any, value to the economy? Oh, but I’m back to my first statement.

      Duane

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    • King Beauregard

       /  March 3, 2014

      Tax reform will never happen to the extent that people will never be satisfied: they will only be satisfied when “the other guy” (for all definitions of “the other guy”) is the one getting hit with tax increases.

      Many years ago, one of my conservative coworkers was bitching about “penalties” on married couples, where you don’t get as big of tax breaks as two people filing single would have. I tried to make the point to him that everyone can find reasons to gripe about the tax code, and he wasn’t hearing it. So I said to him, “Look, you decided to have two kids, and are able to claim deductions on them. Why should I have to pay more on my taxes because you decided to have kids?” Complete silence, because apparently he’d never even considered the question. Rather than leave him twisting, I said that the IRS bean counters try to be fair, they try to figure out what is worth cutting a break on, and it will never be perfect but at least they try.

      Myself, I’m sort of happy with our tax code. Not that there aren’t injustices in there, and not that it doesn’t require tweaking in ways I can’t even imagine. But look at the tax instructions for every random topic from non-cash income to farm equipment depreciation; all of that was written by people trying to be as fair and honest with the calculations as possible, taking into account the myriad considerations that can impact what we earned and where our money went. I appreciate their hard work, and I can’t say I could do half as well.

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      • You are right, King B, about the illogic of tax breaks for large families. For the present time, that is. There was a time, when the nation was young, when it was in our collective interest to encourage population growth. It made for a growing economy, more farm workers and more military men available for wars. But of course those motives are no longer valid and now it’s mostly a cultural meme. But I would like to correct one impression that your comment made, i.e., that it was IRS bean-counters who structured such things. They didn’t and they don’t. It was Congress and their lobbyists and staffers. And, I wonder just how many twists are put into the code by those Congressional helpers when the boss doesn’t read the fine print they produce?

        Another thing in the tax code that could be questioned is the mortgage deduction. It encourages debt, often lasting 30 years, and benefits large loan companies, hedge funds and realtors (who make 6 to 8% on every sale!). Why, if I am a tax-paying renter, should I have to subsidize other people’s mortgages?

        Thanks for commenting. Your remarks always show careful thought and I appreciate that.

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        • King Beauregard

           /  March 4, 2014

          Thank you sir! One thing I should be clearer about, though: I don’t mind tax breaks for large families, because kids are worth our collectively spending some money on. But I think the question succeeded in provoking a little thought, which was the intention.

          Thanks for the correction regarding who writes the tax code — I honestly thought Congress came up with broad strokes and the IRS filled in the details, but that can’t be right, the more I think about it.

          I think I can pull an answer out of my ass about the mortgage deduction: if there weren’t a deduction, we could reach a point where not enough people wanted to buy houses, either to live in or to rent out. Let’s ignore whether it benefits people in the industry, and ask whether it benefits people trying to find a place to live … and I think the answer is yes, yes it does.

          Again reaching deep within, I figure that mortgage deductions help the rental market lean towards plentiful options that are competitively priced, rather than a handful of barons who charge whatever they want.

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          • Agreed, there is an up-side to mortgages as well. Like any financial tool it can be both good, as your example, and bad as in the excess that let many people get mortgages they couldn’t afford and led to the bundling of mortgages that nearly caused another depression. Kinda points to the need for good government regulation, eh?

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