Monday, March 3, 2014

Dave Camp's Devilishly Detailed Adventure

Dave Camp’s Devilishly Detailed Adventure

So, you want to talk about tax reform?  It has to be more fun then the Ukraine. 

I know it would be more colorful if I evoked images of Vladimir Putin (bare-chested) saddling up with his Cossacks to storm into Kiev and make a quick dinner of it.  But that all happened so fast that it looks like there’s nothing left besides the bones.  The deed is done, and there’s only time for the recriminations.  The Russians annexing “their” part of the Ukraine does evoke a certain creepy 1938 Nazis-into-Czechoslovakia feel to it, substituting aggrieved ethnic Russians for aggrieved ethnic Germans, complete with grateful throngs saluting the invaders.  But we all know how well that turned out.

Back to the taxes, a subject so exciting that by the time I’m done with this, we will be making Dave Camp a household name.

Dave Camp is the conservative, but amiable congressman from Michigan’s 4th District, an area that seems temperamentally moderate.  It went 54-46 for Romney in 2012, and supported George W. Bush, both times, by similar margins, but actually voted for Obama in 2008 and Clinton in both 1992 and 1996.  Camp himself has a lifetime 87.8 % rating from the American Conservative Union, which might bring him some credibility in more rational times. 

Camp has been working for many months on something that a lot of people like and support in theory: tax simplification.  In an ideal world pretty much all of us could do our taxes on the equivalent of a post card:  Here’s how much money we made, subtract our standard deduction and exemptions, multiply by a tax rate, write a check. Needless to say, that is not the most popular idea among the accounting and tax attorney set, but that’s why we have rich people, and the people who serve them.

And, therein lies a major part of the problem.  It’s not the potential rise in unemployment in the tax consultant field (they can always be repurposed) but the fact that all that complexity is tremendously profitable.  Because the tax code isn’t the redistributionist and confiscatory outrage that Republicans like to make it.  It is, in fact, a happy place where a handful of words can mean countless dollars.  Capital gains gets preferential treatment.  Carried interest gets preferential treatment.  Home-ownership gets subsidized, as does employer-provided health insurance, as does charitable giving, as does oil and gas exploration.  Even thoroughbred horse breeding has a special gimmie.   And that’s before we get into GRIT-ier and GRAT-ier areas of estate planning.

What this system does is create disparate impacts while hiding those impacts under a progressivity that the truly wealthy often avoid.  To paraphrase Leona Helmsley, only the little people pay the top rate.   Warren Buffet and Mitt Romney pay lower effective tax rates than the folk who empty their garbage cans at night—and they do it legally.  As did the more than 7,000 individuals who earned $1,000,000 or more in 2011, and paid absolutely no Federal Income Tax.  The next time someone utters “class warfare” to you, insist they first explain that.

Yet the phrase “tax reform’ has an implicit appeal.  We all hate taxes, so reforming them has got to be a good thing, and probably a profitable one.  Most of us think we pay too much, and others pay too little, so a little “reform” should mean something extra in our pay packets each week.

It certainly sounds good in theory, and so, presumably, we should have all be rooting for Dave Camp as he set off to make our lives simpler and more profitable.   The problem is them darn details.

Each journey has a starting point, and Camp’s was no different. He knew where not to go. Paul Ryan had shown the way, when, during the 2012 Presidential campaign, he refused to discuss the specifics of his tax reform plan.  What we do know of Ryan’s plan was that eliminated all taxes on interest, capital gains, and dividends, abolished the corporate income tax and estate taxes, and lower the top tax rate.  It made up the money by eliminating the deductions that benefited the middle and working classes. In Ryan’s world, the pay packets about to get thicker were already quite dense.

But Romney/Ryan knew they had a losing electoral hand if they disclosed the actual details of their plan.  That made it fairly obvious that Camp couldn’t sell a revision to the code that was so blatantly tilted in one direction.  Democrats would never sign on, and Republicans, while on board with Ryan’s emphasis, were aware that it couldn’t get through the Democratically controlled Senate.  It’s one thing to actually enact such a plan and reap the appropriate campaign contributions—you can always blame entitlements and labor unions later on for higher taxes and the deficit.  It’s another entirely to go on record as supporting taking more from the middle and working classes while not being able to deliver the legislation to the objects of your bounty.  That’s all pain, no gain, something that politicians have a bipartisan aversion to.

With his outside boundary defined, Camp started down what should have been the right road.  Last January, he broke things up into bipartisan working groups and got encouraging signs of consensus on key issues. He thought he could have hearing on the issues and then work towards a bill that had a strong chance of gaining a solid majority in both the Committee and whole House.  It would be an imperfect compromise, but a clear improvement over the status quo. But by spring, things started to go awry. Instead of having hearings on tax reform, Ways and Means shifted full time to into investigating Obamacare and the IRS, appreciably lowering the kumbaya quotient. 

This left Camp in a bind.  He wanted lower tax rates, funded, essentially, by the elimination of loopholes.  But while there was bipartisan support for the concept, the details were killers. When the Democrats met with Camp in July and proposed working together, they were told (at the GOP caucus’ insistence) that any deal had to include a reduction in the top tax rate to 25% and no new revenues.  That left very little to negotiate beyond how much more the middle and working classes would be taxed to pay for the additional benefits to business and the affluent.  This, they couldn’t sign on to, because all it would do would be to give the GOP both a substantive policy victory and political cover.

The net result was that Democrats pulled out, and the Republicans were never really in.  By October, the prospects of deal had all but collapsed.  Obamacare had a disastrous rollout, the GOP doubled down on the investigations and attempts to defund, and the entire effort dissolved into joint acrimony.

Last week, Camp ended his journey.  He finally released his plan to an audience that ranged from indifferent to outright hostile.  At least the Democrats were polite. The conservative media heaped scorn on it, and him. The Hill reports this morning that even his business allies oppose it.  His own party forgot to leave the light on for him; Mitch McConnell won’t agree to take it up, and the ever-literate John Boehner called it “blah blah blah blah.” 

The funny thing about all this is that pretty much everyone agrees that we need both tax and budget reform.  What Camp has discovered is what Romney and Ryan knew already.  Everyone is for tax reform—so long they don’t have to give up a thing. 

Maybe he should have just sent in the Cossacks.

Michael Liss (Moderate Moderator)

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