Tax Reform Battles Hide GOP Consensus
At first blush, the tax reform blueprint offered by House Ways and Means chairman Dave Camp seems likely to get lost in the divisions that roil the Republican Party.
Camp’s plan is too ambitious (and risky) for the party establishment. That’s why it is essentially a working paper and not a bill. GOP congressional leaders don’t want their members voting to trim or eliminate popular tax deduction ahead of the 2014 midterm elections. Neither do they welcome an elaborate discussion of whose taxes might be raised and whose might be cut.
Simultaneously, the plan is too timid for the Tea Party. Conservative groups weren’t exactly scathing, but they were restrained. FreedomWorks called it an “admirable failure.” The Club for Growth issued a statement that “salutes” Camp’s handiwork, while picking around the edges. Grover Norquist’s Americans for Tax Reform released a helpful list of fixes for the plan.
The main objections were that Camp’s blueprint didn’t go far enough in cutting taxes. It treats capital gains as ordinary income. It didn’t rely on dynamic scoring, that is, didn’t look at how tax policy changes economic behavior when estimating revenues. FreedomWorks’ Dean Clancy called for “massive tax cuts” and complained that Camp still left multiple rates in place.
Camp is even caught in a bit of an internal conservative dispute over tax reform. Some argued his plan should contain larger tax credits for families with children, like the “family-friendly” approach of Utah Republican Sen. Mike Lee. Others dismissed the child tax credits already included as “social engineering.”
This is in contrast with the reaction to Paul Ryan’s budget and Medicare plans, the last detailed set of reforms proposed by a major Republican congressional leader. Ryan’s handiwork initially frightened his superiors while attracting conservative support. It later became the official House Republican budget, even as a small number of conservatives began to protest it didn’t go far enough.
Nevertheless, this obscures the extent to which Camp is reflecting a real Republican consensus. There is nearly universal support on the right for a simpler tax code, with fewer deductions and brackets plus lower rates. Camp makes the tax code less of a special-interest plaything and reduces the corporate-income-tax rate to a more competitive level.
Some of these ideas could even claim Democratic support. Barack Obama agrees the current corporate tax rate is too high. Democrats oppose many of the business subsidies in the present tax code (while supporting many others). Concessions like treating capital gains like ordinary income, revenue-neutrality, and avoiding a pure flat tax were essential to passing tax reform on a bipartisan basis under Ronald Reagan in 1986—a reform that left the country with just two brackets and a top rate of 28 percent.
Camp also subtly shifts the Republican image. Many corporate welfare recipients and lobbyists lose out. So do some rich people, comparatively speaking, thanks to the end of deductions for state taxes and changes in the mortgage interest deduction. (Admittedly, it is businesses that already support the Democrats and high-income residents of blue states that would fare the worst.) Camp takes on the bailout bait of “too big to fail” by effectively creating tax penalties for banks that grow too large.
Moreover, Camp’s plan reflects how much both major parties are hemmed in by their own ambitions—and rivers of red ink. Despite all the Washington back-patting about short-term deficit reduction, deficits are set to spike again in the coming years. Neither the national debt nor the unfunded liabilities of the major entitlement programs has been addressed.
Even the reduced annual budget deficit would have been unacceptable in any other political climate, small only compared to yearly shortfalls in excess of $1 trillion—that is, almost the size of the whole federal budget as recently as when Bill Clinton was president. That makes big Republican tax cuts or large Democratic spending increases untenable without upsetting an already precarious fiscal situation.
Dave Camp’s master plan isn’t going anywhere before November, lest swing-district voters see ads showing the Michigan Republican pushing old ladies in wheelchairs off cliffs. But if his party makes the kinds of gains it expects to, you will hear about it again.
And while a bipartisan “grand bargain” is unlikely, Camp’s proposal might be the starting point for tax reform discussions under the next president—especially if he or she is a Republican.
W. James Antle III is editor of the Daily Caller News Foundation and author of the new book Devouring Freedom: Can Big Government Ever Be Stopped?