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The View from Washington on Tax Reform B y Robert Zucker , Winning Strategies Washington
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hen U.S. Representative Dave Camp (R-MI), Chair of the House Ways and Means Committee, released his draft blueprint for comprehensive tax reform in February, practically the only ones to applaud were tax policy wonks who respected the courage it displayed by eliminating dozens of preferences permeating the tax code since the last major overhaul in 1986. Unfortunately for Camp, tax policy wonks can’t vote to advance his package. In Congress, Camp’s proposed plan, the Tax Reform Act of 2014, received polite support at best from Republican colleagues, and lesspolite reviews from House Democrats like Representative Bill Pascrell from New Jersey who sits on the Ways and Means Committee and who lamented that Democrats were not included in its development. With his term as chair ending, and just one month after introducing his proposal, Camp announced he will retire at the end of 2014. While many in Washington exhaled, knowing that their stakes in the tax code are safe for now, the Camp proposal prompted a reassessment of tax reform. It’s worth examining how Camp tried to win bipartisan support, what the plan’s failure means for future tax reform efforts and how Congress will deal with taxes on a smaller scale in the absence of a larger overhaul. Camp worked diligently over several years to prepare a plan to fulfill the Republican ideal of lowering corporate rates to enhance the competitiveness of American businesses and simplify the rate structure while remaining revenue neutral. To pay for lower rates, the Camp proposal created, in the words of one analyst, “a killing field of sacred cows” in which tax preferences affecting rich, middle-
class and low-income Americans and myriad special interests were targeted for elimination. With the rise of the Tea Party, Camp tacked right by proposing to replace the earned income tax credit, a Democratic favorite, with a partial exemption from payroll taxes. In theory, these efforts should have won Camp broad backing from Republicans, allowing him to focus on securing enough Democrats to move forward. But Camp’s plan also contained several provisions designed either to attract Democratic support or raise revenue to pay for the package, which ultimately undermined the effort. Proposals to end special treatment for carried interest by investment fund managers and assess a special tax on the largest banks, though popular with Democrats, prompted Republican protests. The plan’s dramatic reduction in the mortgage interest deduction and elimination of the deduction for state and local taxes made enough colleagues queasy to arrest any momentum Camp sought to generate. Even in its failure, however, the Camp proposal will profoundly affect the future of tax reform. Provisions Camp proposed for elimination are now on the table for next time, and groups affected by these changes will be working overtime to justify why they should be left alone. For those unscathed by the Camp plan, they will be doing their utmost to ensure they remain secure going forward. Despite the demise of comprehensive tax reform, 2014 will be busy for tax writers in Congress. The focus will shift to renewal of tax provisions that expired at the end of 2013, which is a priority for the business community. The Senate Finance Committee recently approved an $85 billion package, including reinstatement of the research and development tax credit and bonus N E W J E R S E Y C P A • j u ly • a u g u s t 2 0 1 4
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depreciation for businesses. The House Ways and Means Committee is expected to follow suit this summer, with industries and advocates maneuvering to keep pace. Looking ahead, the task of overhauling the tax code will fall to the new Chair of the Senate Finance Committee, Senator Ron Wyden (D-OR), together with Camp’s successor on the House Ways and Means Committee – Representative Paul Ryan (R-WI) being the odds-on favorite. Wyden and Ryan have teamed up in the past, including work on a Medicare reform plan. Their history together could bode well for forging the kind of coalition needed to give tax reform a fighting chance. But as Camp’s experience illustrates, they will have to choose their targets carefully, because the window of opportunity for a plan to catch fire is small. Robert Zucker is a partner at Winning Strategies Washington, a full-service, bipartisan government relations firm. Contact him at rzucker@wswdc.com.