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Camp budget proposal could affect health market

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(Bloomberg) — Republicans have spent the past three years promising to significantly reduce personal and corporate tax rates without increasing the budget deficit. They’re about to show how.

Rep. Dave Camp, R-Mich., chairman of the House Ways and Means Committee, will release a draft bill this week that’s being closely watched by corporate lobbyists and lawmakers. The plan will point up the tradeoffs in reshaping the tax code and altering U.S. tax breaks for retirement, housing, energy, charity, health care, capital gains and finance.

“It gives people a chance to see in stark relief what it takes to get a broader-based, lower-rate code,” said Jonathan Traub, a former senior aide to Camp. “It’s incredibly difficult. There are few provisions in the code that are sort of broadly agreed by everybody to be loopholes. A rate reduction benefits everybody, but it’s very expensive.”

The plan has little chance of becoming law this year. Even so, the response from lawmakers, business groups and the public will test an idea that has been at the center of Republican economic policy.

“It’s going to force people, policy makers, to either say the Camp bill is fundamentally sound or potentially to back off this kind of framework,” said David Kamin, a law professor at New York University and former tax policy aide to President Barack Obama. “This is going to be seen as a manifestation of the general idea that conservatives have been talking about.”

The draft is a product of the political and arithmetic constraints Camp imposed in producing the most complete reconstruction of the U.S. tax code since 1986. He will have to supply all of the details, moving beyond the outlines in House- passed budgets and campaign platforms that typically focus on benefits and not costs.

Camp and the other 22 Republicans on the Ways and Means panel spent several months in closed-door meetings hashing out the details, few of which have become public in advance of the full plan’s release.

Camp has ruled out a capital gains tax increase, said he won’t touch the estate tax and promised to be “careful” with the mortgage break.

Mathematically, Camp is aiming to reduce the top individual tax rate to 25 percent, from 39.6 percent, and the top corporate rate to 25 percent, from 35 percent. He has pledged to do so without increasing the budget deficit and without making the tax code less progressive.

The Camp plan would collapse the seven tax brackets into two — at 10 and 25 percent, the Washington Post reported yesterday. Some income above $450,000 a year would be subject to a 10 percent surtax, the newspaper reported, citing an unpublished congressional report it reviewed.

The plan may lower effective tax rates on capital gains and dividends by taxing them at the same rates as ordinary income while excluding 40 percent from taxation, the Wall Street Journal reported yesterday.

The effective rates would depend whether Camp chooses to retain a 3.8 percent tax on investment income that was part of the Patient Protection and Affordable Care Act of 2010 (PPACA).

Achieving the goals on revenue and distribution of the tax burden — even partially — could require curtailing long- standing tax breaks, such as the exclusion for employer-provided health insurance, accelerated write-offs for capital investment and the mortgage interest deduction.

Even if Republicans could agree, Camp’s plan is a long shot in a politically divided government. The leading Democratic policy makers have other priorities and the party is reluctant to reduce the 39.6 percent top rate for individuals that it fought for years to restore.

Treasury Secretary Jacob J. Lew and other administration officials say Congress should focus only on business taxes, as higher revenue from individuals will eventually be needed in a fiscal agreement to resolve “generational” challenges.

“There is a convergence of thinking on business tax reform, where it is possible that you could get an agreement, if not in the next few months, certainly in the next 18 months, two years,” Lew said Feb. 21 at a conference in Sydney. “I think it would be a mistake to keep business tax reform and individual tax reform totally locked together.”

Camp’s plan, even if it doesn’t go anywhere this year, will be a blueprint for future tax revisions. The 60-year-old from Michigan faces Republican term limits at the end of 2014 that will force him to relinquish the committee gavel, giving him an incentive to air his ideas now.

Camp’s expected successor is Rep. Paul Ryan, R-Wis., who could use the plan as a template, giving him a chance to gauge reaction and make changes. Ryan is currently chairman of the House Budget Committee and was the 2012 Republican vice presidential candidate.

–With assistance from Ian Katz in Washington. Editors: Jodi Schneider, Laurie Asseo

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