The bill would end the “carried interest” income exemption, which allows hedge fund managers and private equity firms to get the investment-income tax rate on their normal wage income.
Rep. Dave Camp (R-Mich.), chairman of the House Ways and Means Committee, announced his promise to slash the income tax code by 25 percent in a YouTube video on Jan. 15. The somewhat strange pledge to cut the tax code, but not taxes, bolstered complaints that reducing taxes isn’t a priority for anyone in Washington.
On Wednesday, Camp delivered his proposal. The plan that clocks in at just under 1,000 pages will, in all likelihood, be his crowning achievement in what is expected to be his final year as Ways and Means chairman.
“We have an obligation to debate the big issues of the day,” said Camp. “I put out this detailed discussion draft so we can engage the American people in this.”
The proposal was dismissed almost immediately.
“The majority leader and the president have said they want $1 trillion in new revenue for the federal government as a condition for doing comprehensive tax reform, which we know we ought to do,” Senate Minority Leader Mitch McConnell (R-Ky.) said Tuesday in response to the proposal. “So I have no hope for that happening this year.”
Speaker of the House John Boehner is eschewing bills that could theoretically split the Republican coalition prior to the midterm, and House Majority Leader Eric Cantor (R-Va.) has indicated that the bill is simply a draft.
For Republicans, a larger concern in considering this bill is the response from the banking industry. The bill would end the “carried interest” income exemption, which allows hedge fund managers and private equity firms to get the investment-income tax rate on their normal wage income. The bill would also create an excise tax on “too big to fail” banks. The tax, which would be triggered if the bank’s total consolidated assets exceed $500 billion, starting in 2015, would be assessed at .035 percent of their total assets.
It would also deny “too big to fail” banks the right to deduct federal deposit insurance premiums from their income taxes.
The bill is seen by some as a remnant of blame lingering over the big banks’ role in causing the Great Recession.
“Such a tax will hurt economic growth and job creation by increasing the cost of capital for American families and business, and undermining U.S. global financial competitiveness,” said Rob Nichols, president of the Financial Services Forum, which represents the chief executives of the largest financial firms.
Nichols also argued that a tax that singles out a single industry is unfair and inconsistent with the spirit of tax reform.
While this particular bill will not pass, the notion that these provisions were introduced in the first place suggests that they are being actively discussed and may reappear in later bills. Private equity and investment firms have told the Republican leadership that commitment to big-dollar fundraising has been “cancelled for the foreseeable future.”
This is problematic for a party that is trying to extend its margin of control in the House. Besides campaign committees, high finance is the Republicans’ single largest contributor, and with the large number of competitive races this year, campaign funding could decide the race in November.
Camp’s tax reform package would also reduce the number of tax brackets from seven to two, lower the maximum income tax rate to 25 percent, expand the standard deduction, repeal the Patient Protection & Affordable Care Act’s medical device excise tax and eliminate most credits and deductions for the oil, gas and green energy industries. The bill would also remove deductions and credits for first-time homebuyers, medical and moving expenses, adoption, state and local tax and the personal exemption, among others.