The tax-reform proposal unveiled this week by House Ways and Means Committee Chairman Dave Camp will set the parameters for any subsequent overhaul, especially one that affects powerful institutions.
Camp's proposal would impose a special fee on big banks, and private-equity firms would lose their carried interest tax breaks. It also would lower corporate and individual rates while curbing tax preferences.
The plan is unlikely to be acted on this year. However, it is being championed by Representative Kevin Brady, chairman of the Joint Economic Committee and a senior member of Ways and Means.
In an interview Friday morning on "Political Capital with Al Hunt," Brady, a Republican, said that although it isn’t clear any action will be taken this year, the proposal likely sets a precedent for the tax-reform debate. "This is just the important step," the Texas lawmaker said, though he acknowledged that it matters "how this is received, how groups weigh in, how members feel about it."
Although Republicans have long talked about the need to lower tax rates, even at the expense of ending some tax preferences, the Camp proposal hasn't been well received by many of the party's members in the House. Most don't like the idea of having to talk in an election year about controversial measures such as curbing the home-mortgage deduction or some charitable contributions. They worry that such a discussion could box them in if they take up any tax-reform measures in the next Congress.
Brady, a candidate to be the next Ways and Means chairman, said big banks are wrong to oppose the levy that would be imposed on them by the reforms. He said banks would have a much lower rate overall.
"If you look at the whole package, I think this has much more benefit, especially as banks are laying off thousands of workers because of this disappointing economy," he said. "My advice to the big banks: Take a look at the whole package."
He was surprised when anti-tax activist Grover Norquist said the plan would "severely hamstring capital investment" and damage potential economic growth. Brady argued the opposite: that because the plan will result in a reduction of rates, it will grow the economy and draw capital to the U.S.
Brady took issue with the Committee for a Responsible Budget, which claimed the plan "relies on several one-time revenue and timing shifts to pay for permanent rate cuts" that could increase budget deficits. According to Brady, the tax proposal does the opposite, generating more revenue thanks to the dynamic economic effects of the changes.
The measure has also been criticized by the Center on Budget and Policy Priorities for curbing the earned income tax credit. The liberal group contended that a working mother with two children and who made the minimum wage could lose as much as $2,000 a year when the plan was fully in effect. Brady said he didn't think that was the case and that under the plan "everyone making up to $100,000 sees a tax cut."
Actually, that would be the case for most people, but some, as the Center on Budget and Policy Priorities notes, wouldn't benefit.
Brady acknowledged that he is probably in a contest for the Ways and Means chairmanship with former vice presidential nominee and House Budget Committee Chairman Paul Ryan. Though he called Ryan "a terrific leader and good friend," he denied the Wisconsin lawmaker has the inside track for the post, saying, "I'm qualified and prepared to lead this committee."
(Albert R. Hunt is a Bloomberg View columnist. Follow him on Twitter @AlHuntDC.)
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