Yesterday I explained why that was nothing to weep over: We need more tax brackets, not fewer, and a higher top marginal rate, not a lower one. But Camp deserves praise for doing something Mitt Romney never dared to do as a presidential candidate in 2012. He identifies specific tax breaks that he would eliminate in order to replace the revenue lost in lowering top rates. Many of these deserve to be tossed onto the scrap heap.
That’s not to say the overall tax plan would make good law. A distributional analysis of the bill by the Joint Committee on Taxation confirms my suspicion that it would shift some of the tax burden from rich to poor. In 2015, according to JCT, federal taxes would rise on all incomes below $20,000. Although that would change to a slight decrease by 2017 and a larger decrease in subsequent years, by 2023 taxes would also be falling on incomes over $1 million—precisely the opposite direction we need to be going. (Taxes would also fall, in 2015 and 2017, on incomes between $100,000 and $200,000, which by any reasonable definition are affluent.)
The part of Camp’s proposal that merits praise isn’t its regressive rate structure (which also includes an ill-considered effective decrease in the capital gains tax) but its surprisingly progressive elimination of many tax breaks. Here are three:
Carried interest. Currently rich hedge fund managers and private equity funds get to treat much of their income as “carried interest,” allowing them to pay a much lower tax rate. Carried interest represents, by one estimate, one third of the income that private equity general partners receive, so a lot of money is at stake, and for years Wall Street has fought bitterly to keep this special break. Camp’s proposal would treat carried interest as ordinary income.
S Corporations. John Edwards and Newt Gingrich both generated bad publicity during their respective presidential campaigns in 2004 and 2012 when it was discovered that they’d taken advantage of an IRS loophole to define themselves as “S Corporations.” This maneuver allows individuals to avoid paying payroll taxes. Camp’s plan would require such people to pay their payroll taxes.
Mortgage interest deduction. Perhaps the biggest sacred cow in the tax code, mortgage interest is currently deductible up to $1 million. Camp’s plan would gradually lower the ceiling to $500,000, which will eliminate the deduction for a lot of homeowners who don’t deem themselves rich. This is a bold move, and—though you’ll hear a lot of screaming about it – a progressive one.
Eliminating these tax breaks would make the tax system fairer, and it would raise considerable revenue that could help reduce the deficit. Why waste the money on lower tax rates for millionaires? Of course, this discussion is largely theoretical, because the tax plan isn’t expected to pass. Still, it’s good to have the GOP on record favoring a bushel of liberal tax changes.