More On Tax Planningfrom The Advisor's Professional Library
- Long Term Care Insurance: Premiums While premiums for qualified long-term-care insurance may be deductible as medical expenses there are exceptions to this general rule. Learn how to avoid unnecessary tax liabilities.
- Suitability and Fiduciary Duty Recommending suitable investments is more than just a regulatory obligation. Many investors bring cases claiming lack of suitability, so RIAs must continuously put the onus on clients to notify the advisor of changes in their financial situation.
House Ways and Means Chairman David Camp told Bloomberg TV’s "Street Smarts" Thursday that his plan to overhaul the tax code is “moving forward,” and that despite the fact that his draft legislation has stirred up a hornets’ nest in Washington, “we’re doing all the work in order to make that happen.”
Said Camp, R-Mich., to Bloomberg TV’s Chief Washington correspondent Peter Cook: “We have a lot of Republicans and Democrats supporting the fact that we’re moving forward on this” draft legislation.
After being called a “brave man” by Cook to put such a tax overhaul plan out in a midterm election year, Camp responded: “It's February. We're supposed to do nothing until the election?”
Retirement planning groups, however, says Camp’s plan is a nightmare for retirement savers. Chris DeGrassi, executive director of the National Tax-deferred Savings Association (NTSA), said after the discussion draft was released that while Camp hails the bill as a “comprehensive simplification of the tax code,” the bill actually attacks workers of modest means.
The legislation, DeGrassi said, “seeks $200 billion in new taxes on retirement savings to pay for favors to Wall Street, such as excluding the first 40% of investment income from the capital gains tax. To accomplish this goal, the chairman effectively eliminates the main distinctions between private workplace retirement plans, such as 401(k) plans, and public and nonprofit workplace plans, such as 403(b) and 457 plans, in the name of tax code simplification and increased short-term revenue.”
These distinctions, he says, “were designed to protect traditionally lower paid workers who feel called to serve society.”
Here’s an edited transcript of Camp’s discussion with Bloomberg’s Cook:
PETER COOK: You had to know putting this plan out in a midterm election year you'd get fire from all sides. You're getting it. Why'd you do this? Is this a kamikaze mission?
REP. DAVID CAMP, R-MICH.: No. Look, our economy isn't growing. I'm not going to accept 2% growth as the new normal. I'm not going to accept a minimum-wage economy, and I'm not going to accept the fact that we're not creating jobs. Kids are living at home because they can't get out on their own. So we need to grow this economy. We need to create jobs. One way to do that is through pro-growth tax reform. Also, we need to be the party of ideas. We need to move issues forward. And this is a big one that could help — help people, help jobs and really make America a much better place.
COOK: The big picture here for this plan, you've reduced the number of tax brackets from three, two, depending how you to look at, from seven. You also reduce the top rate both for the corporate side and for the individual side, yet you do away with a lot of these tax breaks or at least limit them, ones on the books right now. You've got industry folks, you've got Republicans and some Democrats taking aim at you over some of those changes. Are you ready for that?
We get rid of 228 provisions, reduce the code by 25%. Ninety-five percent of Americans will not be itemizing. That's many small-business owners as well. And so because we simplify and because we lower rates, we actually grow the economy by 20%. And if we can get 20% growth in the economy, that also translates into almost 2 million jobs. And look, jobs and the economy, that's the number-one issue facing Americans. And Americans want us to do something about it. So this draft proposal is one way to do something about it, and it's pro-growth reform.
COOK: And it's also a sure way to get tax lobbyists in this town running all over the city trying to undermine your efforts. You've got individual industries here taking aim. Let me talk about one specific in your plan. This tax on the largest financial institutions in the country. Sounds an awful lot like what the president proposed after the financial crisis, the financial crisis tax. Tell me the justification for targeting an individual industry like this.
CAMP: I think it affects about six banks…
COOK: Four or five insurance companies as well.
CAMP: But look, they are going from a 35% rate to a 25% rate. And the financial sector there aren't a lot of provisions, loopholes, et cetera, to close because there aren't many. So they're getting a tremendous tax break, and I think it's important there be a tradeoff. In order to pay for and have revenue-neutral tax reform, if you're going to lower rates by that much — and frankly many and most financial institutions are going to do better under this plan than they do now. And you know why they're going to do better? Because the economy's going to grow. The nonpartisan Joint Committee on Taxation says we're going to get growth. And if we get growth, everybody does better. As President Kennedy said, a rising tide lifts all boats.
COOK: Eleven banking trade associations, even the smaller guys who aren't hit by this, joining together saying this is a bad idea. You're going after lenders.
COOK: The idea of diverting some of that money for infrastructure, some of the overseas income that would be coming back, that's again an idea the president has put forward on the table. You also have higher taxes here. The surtax on the wealthiest Americans. It sounds an awful lot like some of what we've heard from President Obama. Was that a conscientious effort on your part to try and draw in the administration and Democrats? Are you becoming a populist like President Obama?
CAMP: Look, I don't think infrastructure investment is necessarily a Democrat issue. A lot of Republicans want to see the Highest Trust Fund get funded. And if we can fund the Highest Trust Fund as we do for a few years, that allows us to look at some permanent solutions. Because the gas tax is not providing enough. Look, we don't raise the gas tax. We don't ask Americans to contribute more. This is from dollars that are earned overseas that come back and invest it in infrastructure. That's not exactly what President Obama was suggesting.
Also, in terms of financial institutions, we're quite different than what President Obama was suggesting as well there. But look, what is important is we need to have this debate. Most Americans I talk to, business leaders and others, say times aren't good enough. And you know what the concern is? They don't think things are going to get better. What we need to do is really restore the American dream, restore the belief that things are going to get better.
If we can begin to grow the economy, begin to create jobs, look, we increase incomes for median-income families by $1,300 each and every year. Median incomes have been declining. And if incomes go up, people buy houses. They buy cars. Businesses grow. So this is very important that we have the discussion. It's very important we move ahead. That's why I introduced not just part of it but a detailed draft so we know what the tradeoffs [are].
CAMP: Look, I worked on welfare reform, one of the most positive pieces of legislation. It was vetoed twice by the president. Everybody said it was dead. It passed. It's actually been a very big positive effect in terms of bringing people to independence and taking children out of poverty. Look, we need to be persistent around here. Most Americans think things — think things are not good enough.
We need to try to make things better. This is an attempt to do that. We need to be engaged in the big issues of the day, growing the economy, creating jobs, and have specific proposals to do that are what the American people sent us here to do. They didn't send us here to warm a chair. So we need to try to make a difference. This is one way to do it and I'm really excited about moving ahead on it.
COOK: What would you say to your fellow House Republicans who say, listen Dave, I might support a lot of these ideas in here, but you're asking me to — someone in my home district in this election year is going to ask me, do you support Dave Camp's plan or not? That's going to be a tough decision for a lot of those folks. You've put them on the spot.
CAMP: Look, it's February. We're supposed to do nothing until the election? I think most people sent us here to work for two years. That's what the term is. We need to work those entire two years. And look, there's a lot of support from members of Congress, Republicans and Democrats. There's a lot of good things in this bill for the American people in terms of growth, higher incomes. And if we can do those things, simplifying the code as well, we have — we're ahead of where we are now. And that's what people want to do.
COOK: Is the administration on board?
CAMP: Look, the White House put out a statement that I think is very much - they want to work with us. I've spoken to the secretary of the treasury. We had treasury secretary's staff people in the meeting today that we went through with the committee. They're cooperating with us. We're working through the technical aspects of this bill. Look, this thing is moving forward and we're doing all the work in order to make that happen.
COOK: Well you are a brave man to put this out here in this midterm election year.
Check out Camp’s Tax Plan Unlikely to Pass but Sure to Ignite Debate on ThinkAdvisor.