(Bloomberg) — For a plan unlikely to become law anytime soon, Representative Dave Camp’s proposal to revamp the tax code is causing a lot of agitation among U.S. companies.
The American Petroleum Institute says accounting rule changes could depress energy production. The Financial Services Forum, representing chief executives of the nation’s biggest banks, warns that a tax on their companies’ assets would curtail lending. The National Association of Realtors objects to changes limiting deductions of mortgage interest and property taxes.
Camp’s 979-page draft proposal, released yesterday, would eliminate dozens of breaks and reduce rates in the most complete reconstruction of the U.S. tax system since 1986. U.S. business groups, backed by large corporations and their lobbying budgets, are escalating the political pressure on Camp and other lawmakers to prevent provisions that harm them from becoming law.
“This carries with it a seriousness that many view as the start of what will be a multi-year process,” said Micah Green, a partner at Patton Boggs LLP in Washington who is a lobbyist for companies such as Lloyd’s of London Ltd. “It’s the ultimate trial balloon, and either it gets shot down or continues to rise.”
A clear picture of the winners and losers from Camp’s plan will emerge in the coming days and weeks. Generally, companies that now pay high effective tax rates will get a boost from the plan’s rate cuts and lose little from the vanishing breaks. Companies and constituencies that benefit from the current system would likely pay more under Camp’s plan.
Retailers, medical device makers and franchise businesses yesterday were supportive of the plan.
“We need to carry the message that this is absolutely, critically important,” said Kirt Johnson, vice president of tax policy for the Retail Industry Leaders Association, which includes Wal-Mart Stores Inc., Target Corp. and other big-box chains.
The oil, financial services, private equity and real estate industries were more critical.
“A targeted tax on financial institutions, regardless of form or motivation, is misguided and utterly at odds with the fundamental objective of comprehensive tax reform,” said a letter from 11 banking groups, including associations that represent Morgan Stanley and Goldman Sachs Group Inc. Business groups
The largest U.S. business groups, including the U.S. Chamber of Commerce and the Business Roundtable, applauded Camp’s effort as progress toward boosting economic growth while stopping short of a full endorsement.
Declarations that Camp’s plan is dead on arrival are disappointing, Business Roundtable President John Engler told reporters on a conference call today.
“The groups that are going to struggle with this in terms of their lobbying are those that have said for a long time that they don’t like the current tax code, but they don’t like any proposals and they’ve got none of their own,” Engler said. “That’s a hard position to be in.”
Small-government groups such as Americans for Prosperity and the Club for Growth also praised Camp’s plan.
“We particularly applaud Chairman Camp’s willingness to take on the special interests that predictably screamed bloody murder as soon as he put out his blueprint,” Club for Growth President Chris Chocola said in a statement today, while adding that his group doesn’t agree with all of Camp’s proposals.
“This plan takes on the big corporations that for too long have seen the Republican Party as nothing more than a rubber- stamp for crony capitalism,” Chocola said.
Camp, 60, is a Michigan Republican who is chairman of the House Ways and Means Committee. He said yesterday that he expects to hear plenty of objections to specific provisions — and that the public wants a simpler tax system.
“What they really want, and what this plan delivers, is a stronger economy,” he said, citing a nonpartisan congressional study showing that the plan would boost economic growth.
Lawmakers in both parties don’t expect Camp’s plan to become law this year. House Republican leaders have distanced themselves from the details and haven’t committed to allowing a vote. While the plan doesn’t change the amount of revenue generated for the Treasury, Democrats want to use some of the revenue raised from limiting tax breaks to reduce the budget deficit or pay for more spending.
Senate leaders from both parties said this week that they saw little if any chance of bridging those big-picture divides. Even if they could, they would have to overcome opposition to changes in long-standing tax breaks for mortgage interest, charitable contributions and state and local taxes. Still, Leonard Burman, director of the nonpartisan Tax Policy Center in Washington, said Camp’s proposal is worth studying as the starting point for future tax policy. In that sense, he said, Camp has done a “real service” by showing the tradeoffs needed to pay for rate cuts and simplification.
“Everybody knows that we need tax reform and I think anybody that pays attention knows that it’s hard,” said Burman, who was a Treasury Department official in President Bill Clinton’s administration. “Everybody who looks at the plan will have issues with it. That’s kind of the nature of tax reform.”
For individuals, Camp would make the tax system simpler by increasing the standard deduction and the child tax credit, repealing the personal exemption and limiting or removing many deductions. The percentage of taxpayers who itemize would fall to about 5 percent from about 30 percent.
Taxpayers could no longer deduct state and local taxes, moving expenses, tax preparation fees, student loan interest or alimony payments, among others.
They could deduct mortgage interest on the first $500,000 of principal, down from $1 million now. They could only deduct charitable contributions that exceed 2 percent of adjusted gross income.
Camp would create a three-bracket structure with a top rate of 35 percent, compared with the top rate of 39.6 percent today. For married couples in 2015, that means 10 percent on the first $74,800 of taxable income and 25 percent on taxable income up to $464,200.
Above that, a very different set of rules would be in place. A 10 percent tax would apply on a base that includes the value of employer-sponsored health insurance, contributions to retirement accounts and municipal bond interest while excluding manufacturing income and charitable contributions.