The chairman of the House Ways and Means Committee, Dave Camp, is trying to cut taxes and simplify the tax code, so I hesitate to be too dismissive of the tax reform plan he unveiled this week. But that said, I can't really help the feeling that what it amounts to is pretty disappointing — especially coming from the House Republicans, who are supposed to be the Tea Party, pro-growth representatives in Washington.
Americans for Tax Reform, Grover Norquist's group, said, "the Camp draft would severely hamstring capital investment, unnecessarily damaging potential economic growth over the long run." ATR said, "Today, the top marginal income tax rate on capital gains and dividends is 23.8 percent. Under the Camp draft, this rises to 24.8 percent." For this, we need Republicans? To raise the already high tax rates on savings and investment?
The Heritage Foundation's Stephen Moore said the highest Camp rate, 35% (more if you add the 3.8% ObamaCare/Medicare tax) "is still too high and an unnecessary nod to the class warriors on the left." Mr. Moore is correct. Ronald Reagan, working with a Democratic House of Representatives, got the top rate down to 28%, and even George H.W. Bush kept it down to 31%.
The president of the Private Equity Growth Capital Council, Steve Judge, criticized Chairman Camp's decision to try to raise taxes on managers of private equity, venture capital, and real estate partnerships who earn "carried interest." He said, "it is so disappointing that Chairman Camp chose to single out private equity investment by exacting a 40 percent tax increase that will discourage new investment. ...Chairman Camp's proposal penalizes long-term capital investment, which he and other members of the House Ways and Means Committee have purported to support. It is our hope that as the debate over tax reform unfolds, policymakers will utilize the opportunity to reform the tax code as a way to encourage, not undermine, capital investment in America."
The Tax Foundation, a center-right nonpartisan group, said of the Camp plan, "on first blush it appears to do little by way of addressing the complexity of the tax code, and in some ways, makes the tax code more complex."
Even Mr. Camp's proposed top corporate tax rate of 25% isn't going to go far in bringing formerly American companies back from Switzerland or Ireland. See my comments from 2011:
At 25%, a federal rate would be twice that of Ireland, which has a 12.5% rate. It'd be 51.5% higher than the 16.5% top federal corporate tax rate that applies in Canada. It'd be 13.6% higher than the 22% top federal rate in South Korea, and 31.6% higher than the 19% top rate that applies in Hungary, Poland, and the Czech Republic. It'd be almost three times the top federal tax rate in Switzerland, which is 8.5%. Twenty-five percent is the corporate tax rate in Communist China, which isn't exactly a model for what Americans should emulate in terms of the size of government. All these statistics are from the Tax Foundation.
As a practical matter, a 25% rate isn't going to be low enough to bring back the revenue from companies that, as a recent "60 Minutes" piece reported, are moving businesses to Switzerland and Ireland so they can pay those lower rates.
And as a political and philosophical matter, is this really the message that Republican conservatives in the House of Representatives want to be sending? The best we can do for a corporate tax rate proposal is a rate that's higher than Canada's and than a lot of European countries?
The 25% top corporate rate proposal is even out of touch with one of the intellectual powerhouses behind the Reagan supply-side tax-cutting revolution, Nobel Laureate economist Robert Mundell. At a recent conference sponsored by the Manhattan Institute for Policy Research, the Wall Street Journal, and the Ronald Reagan Presidential Foundation, Professor Mundell recommended that America's corporate tax rate be cut to 20% or 15%.
If this is the tax plan that Congressional Republicans are going to go into the 2014 election with, they'll be better than the Democrats, but they won't deserve much popular enthusiasm from the tax-cutting, pro-growth conservative base. Any Republican tax plan is only a starting point for negotiations with Democrats who will try to increase the proposed rates, so if the Republicans want to make any progress on this issue, they'd be better off with bold proposals that really lower rates in a meaningful way. If Americans are to go through the trouble of figuring out new tax rules, at least they ought to get some growth and rate reductions out of it.
The Camp plan, or anything like it, seems unlikely to become law this year. The best hope is that it will be useful for Republicans as an example of the kind of tax "reform" to avoid.