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Camp Releases Tax Reform Plan to Strengthen the Economy and Make the Tax Code Simpler, Fairer and Flatter
Plan Closes Loopholes to Lower Tax Rates for Families and Job Creators
Washington, DC - Today, Ways and Means Committee Chairman Dave Camp (R-MI) released draft legislation to fix America’s broken tax code by lowering tax rates while making the code simpler and fairer for families and job creators. Camp’s latest draft, the “Tax Reform Act of 2014,” spurs stronger economic growth, greater job creation and puts more money in the pockets of hardworking taxpayers.
Based on analysis by the independent, non-partisan Joint Committee on Taxation (JCT), without increasing the budget deficit, the Tax Reform Act of 2014:
Based on calculations using data provided by JCT, the average middle-class family of four could have an extra $1,300 per year in its pocket from the combination of lower tax rates in the plan and higher wages due to a stronger economy.
Discussing the need to fix America’s broken tax code, Camp said, “It is no secret that Americans are struggling. Far too many families haven’t seen a pay raise in years. Many have lost hope and stopped looking for a job. And too many kids coming out of college are buried under a mountain of debt and have few prospects for a good-paying career. We’ve already lost a decade, and before we lose a generation, Washington needs to wake up to this reality and start offering concrete solutions and debating real policies that strengthen the economy and help hardworking taxpayers. Tax reform is one way we can do that.”
During Camp’s three years as Chairman of the Ways and Means Committee, both Democrats and Republicans on the Committee have invested significant time and energy to better understand how today’s broken tax code affects families and job creators. Going to great lengths to ensure that the real experts – individuals, families and job creators of all sizes and industries – were a part of the conversation, this transparent, “everyone gets a seat at the table” process involved more than 30 separate Congressional hearings dedicated to tax reform, 11 separate bipartisan tax reform working groups created in conjunction with Ranking Member Sander Levin (D-MI), three discussion drafts looking at discrete areas of the tax code and more than 14,000 public comments at TaxReform.Gov.“This legislation does not reflect ideas solely advanced by Democrats or ideas solely advanced by Republicans, nor is it limited to the halls of Congress,” said Camp. “Instead, this is a comprehensive plan that reflects input and ideas championed by Congress, the Administration and, most importantly, the American people. In other words, it recognizes that everyone is a part of this effort and can benefit when we have a code that is simpler and fairer. I am hopeful that lawmakers on both sides of the aisle – and partners at both ends of Pennsylvania Avenue – take a close look at this plan and share their thoughts and ideas, and those of their constituents. The bottom line: just saying ‘no’ is not a solution. Washington must make real progress on the critical issues of the day, the most important of which is strengthening the economy. We can, and need, to work together to craft a plan that fixes our broken code and strengthens the economy so there are more jobs and bigger paychecks for hardworking taxpayers.”
Highlights of the Tax Reform Act of 2014 include:
In keeping with previously released drafts, the Committee seeks input and feedback on technical and policy issues raised by the draft released today. The Committee also invites input on the accompanying technical explanation prepared by the JCT staff, a document that could serve as the basis for similar legislative history on any future tax reform legislation that may be considered by the Committee. Additionally, as it further examines options arising from the budgetary and economic analysis, the Committee is especially interested in receiving constructive feedback on areas listed below.
1. Extenders Policy ($1 Trillion): The proposal has been scored by JCT as deficit neutral; it does not increase the budget deficit relative to the projected deficits for the FY2014-23 budget window. CBO’s revenue baseline for this period assumes that a number of tax policies expire and are not renewed. However, CBO has noted that “[n]early all of those provisions have been extended previously; some, such as the research and experimentation tax credit, have been extended multiple times.” Including a permanent extension of these policies would result in the revenue baseline being almost $1 trillion lower over the FY2014-23 budget window than projected. In such a scenario, the proposal would therefore reduce the deficit – mostly through revenue increases – potentially by as much as $1 trillion (without considering all potential interactions among those policies and the proposal). CBO annually presents an “alternative fiscal scenario” that assumes these tax provisions are made permanent – the same assumption generally used for spending programs in CBO’s traditional baseline. The Committee is interested in feedback on which (including none or all) of these expiring tax provisions should be included in the revenue baseline for purposes of determining whether the proposal is deficit neutral.
2. Dynamic Revenue ($700 Billion): JCT’s analysis shows that the additional economic growth that would result from the enactment of tax reform would generate up to an additional $700 billion in tax receipts over the FY 2014-2023 budget window as a result of increased employment and higher wages. This additional revenue, however, is not taken into account as part of JCT’s determination that the proposal is deficit neutral. As a result, under the proposal as currently structured, this additional revenue would be available to the Federal government for a variety of purposes. The Committee is interested in feedback on how this additional revenue should be treated (e.g., should it be used to further lower tax rates or to provide other tax benefits, should it be dedicated to deficit reduction, or should it be dedicated to some combination of the two).
3. Household Impact: The proposal has been scored by JCT as being distributionally neutral; it does not significantly change the share of taxes paid by or the average tax rate for each income cohort reported by JCT. However, each income cohort reported by JCT includes a heterogeneous mix of taxpayers. For example, the combination of lower rates, the increase in the size of the standard deduction, and the reforms to the child tax credit and EITC will affect households differently depending on the number of children in the household and whether the taxpayer files jointly. The Committee is interested in feedback as to whether and how these more detailed circumstances should be analyzed and whether there are certain distributional outcomes that are more preferable than others (e.g., effects on households with multiple children versus households without children within the same income cohort).
4. Economic Modeling: JCT’s analysis of the proposal includes an analysis of the macroeconomic effects of tax reform on the U.S. economy, which is sometimes referred to as a dynamic score. This dynamic score shows that the proposal would result in substantial additional economic growth and job creation as compared to the status quo. JCT used two different economic models and a variety of assumptions to calculate the dynamic score. The two models take different approaches to modeling the impact of the proposal on the U.S. economy. For example, one model, the MEG model, cannot fully account for the breadth of the changes to international tax policy made by the proposal and therefore understates the extent of additional investment in the U.S economy, particularly for investment in high-technology, IP-intensive sectors. The OLG model, on the other hand, contains a fiscal constraint that requires the debt to GDP ratio to be held constant between the pre- and post-reform economy, thus failing to capture the full benefits of reduced budget deficits on the economy. The Committee is interested in feedback on the methodology and parameter estimates used by JCT in performing the macroeconomic analysis and recommendations on how this analysis can be improved.
5. Greater Compliance: The current complexity of the tax code makes compliance difficult and facilitates billions of dollars in improper payments and fraud. The most recent estimate shows that the tax gap amounts to $450 billion annually. The proposal includes a number of reforms that would substantially simplify the tax code and improve reporting and compliance. This improved compliance is partially – but not fully – incorporated into JCT’s analysis of the proposal. The Committee is interested in feedback on how to analyze the impact of the proposal on improving compliance, closing the tax gap, and reducing improper payments and fraud. The Committee is interested in receiving analysis that would quantify the extent of the improved compliance and recommendations for how measurements of improved compliance should be factored into any analysis in determining whether the proposal is deficit neutral.