• The Heritage Network
    • Resize:
    • A
    • A
    • A
  • Donate
  • Tax Reform at Last?

    Getty Images

    Getty Images

    Today, House Ways and Means Committee Chairman Dave Camp (R) of Michigan jumpstarts the tax reform debate. It’s about time. The tax code stables in Washington haven’t been cleaned out since 1986—more than a quarter century ago, when Ronald Reagan was President.

    Since then, year after year, the tax code gets engrafted with more special interest loopholes, credits, and carve-outs. Not only is this unfair to those without lobbyists, it makes the tax code mindlessly complex—a job security program for tax lawyers and accountants.

    Worse yet, back in the 1980s, the U.S. had among the lowest income tax rates on businesses in the world. Today, our small and large businesses pay among the highest rates.

    Our corporate tax rate is now the highest in the industrialized world at 35 percent—because almost all other nations have slashed their business taxes to attract jobs and businesses. This high corporate rate in practice acts as a tariff on the goods and services we produce in the United States. Our analysts at Heritage find that this lowers wages of American workers. Want to give U.S. workers a raise? Cut the tax rates on businesses so they invest more here.

    Camp aims to fix all of this by rewriting the tax code, and that starts with lowering tax rates across the board and eliminating loopholes.

    He would shrink the current seven income tax brackets down to three: 10 percent, 25 percent, and 35 percent for those families with incomes above $450,000. That highest rate of 35 percent is still too high and an unnecessary nod to the class warriors on the left, but it would be an improvement on the current Obama rate of more than 40 percent.

    The corporate tax rate would fall from 35 percent to 25 percent, which is at least closer to the world average. Camp would also allow companies to bring capital stored abroad back into America at a low tax rate of less than 10 percent, which will mean more investment and insourcing of jobs on these shores—as well as more revenue for the Treasury.

    Camp’s plan also simplifies the tax code by allowing millions of tax filers a larger standard deduction, which means they can forgo the hassle of itemizing deductions and go straight to the EZ form. For those who do itemize deductions, many of the carve-outs will be gone—but not the mortgage or charity write-offs.

    Expect the White House to lambast this plan as a “tax cut for the rich,” but the evidence from history shows that lower tax rates are usually associated with higher overall tax receipts and more taxes paid by the rich. In the 1980s after two rounds of Reagan tax rate reductions, income tax receipts doubled, and the share of taxes paid by the top 1 percent, 5 percent, and 10 percent rose as the economy expanded.

    This is an important history lesson. Now,  congressional revenue estimators are using “dynamic scoring” to estimate what happens to the economy and revenues if the new plan is implemented. This yields a “growth dividend” for the economy of at least $700 billion, our sources tell us. A word of advice to Chairman Camp: Use that extra money for better treatment of capital investment or to lower tax rates still further to get even more growth.

    The U.S economy has slogged along at just a little over 2 percent growth during this recovery—and last year, less than that. Imagine 4 percent growth for the next decade, and you’ve added nearly $2 trillion more in tax revenues to pay the government’s bills.

    I’d prefer to see something closer to a pure flat tax with one tax rate, a postcard-sized return, and no double tax on saving and investment—much like what Steve Forbes proposed back in 1996. And there are some bad ideas buried in the Camp plan, such as a tax on the assets of big banks that received bailout funds in 2008-09. That seems more at home in the Obama redistribution budget than in a pro-growth tax reform vision.

    But on balance, this is a gutsy and courageous first attempt to take on the beehive of special interests in Washington and grow the economy while making the tax system fairer and more comprehensible.

    The tax system we have is absurd in the 21st century. It’s as if we were trying to operate our businesses and compete in global markets with clunky computers and an operating system built in 1985. If Republicans want to be the party of solutions, the party of growth, and the party of reform, they ought to rally behind the spirit of Mr. Camp’s initiative—and even make it bolder.

    Stephen Moore is chief economist at The Heritage Foundation.

    Posted in Capitol Hill, Economics, Featured, Front Page [slideshow_deploy]

    13 Responses to Tax Reform at Last?

    1. Pingback: Tax Reform at Last? : ParrottCPA News

    2. Pingback: Tax Reform at Last? - Exploring the News

    3. Pingback: Heritage’s Macroeconomic Estimate of Camp’s Tax Reform Proposal

    4. Pingback: Tax Reform Proposal Divides Republicans | Xtax

    5. Pingback: February 27, 2014 Grumpy Daily Headlines | Grumpy Opinions

    6. Pingback: Tax Reform Ideas | 3 Ways to Make April 15 Less Painful

    7. Pingback: 3 Ways to Make April 15 Less Painful - Exploring the News

    8. Pingback: Thursday Daily Digest – The Federalist

    9. Pingback: ObamaCare Horror Stories ‘Untrue’ + More – Daily Digest | PA Pundits - International

    10. Pingback: Paul Revere’s Daily News Brief – 2.28.2014 | 19april1775

    11. Pingback: Macrh 2, 2014 Grumpy Daily Headlines | Grumpy Opinions

    12. Pingback: March 3, 2014 Grumpy Daily Headlines | Grumpy Opinions

    13. Pingback: Why I’m in Camp’s Camp | The Save Jersey Blog

    Comments are subject to approval and moderation. We remind everyone that The Heritage Foundation promotes a civil society where ideas and debate flourish. Please be respectful of each other and the subjects of any criticism. While we may not always agree on policy, we should all agree that being appropriately informed is everyone's intention visiting this site. Profanity, lewdness, personal attacks, and other forms of incivility will not be tolerated. Please keep your thoughts brief and avoid ALL CAPS. While we respect your first amendment rights, we are obligated to our readers to maintain these standards. Thanks for joining the conversation.

    Big Government Is NOT the Answer

    Your tax dollars are being spent on programs that we really don't need.

    I Agree I Disagree ×

    Get Heritage In Your Inbox — FREE!

    Heritage Foundation e-mails keep you updated on the ongoing policy battles in Washington and around the country.