In the coming days, the House will pass a tax bill that would extend the Bush tax cuts entirely for one year. This stands in slight contrast to a Senate-passed bill that extends the same tax cuts for the first $250,000 of income. But what I didn’t realize is that the House bill will also set up a mandated process for tax reform that would weaken the rules of the Senate in an attempt to fast-track the effort.
The reason that the extension only lasts one year is because of this tax reform process, unveiled by House Ways and Means Committee Chairman Dave Camp. By the end of 2013, Congress would have to rewrite the corporate and individual tax code, under the proposal.
The expedited process outlined Tuesday makes plain the scope of Republican ambitions, including the push to limit federal tax revenue to between 18% and 19% of gross domestic product, and to eliminate the alternative minimum tax, which was designed for the wealthy but has begun to entangle many more ordinary taxpayers.
Republicans also want to establish a world-wide tax system in which multinational companies pay taxes in jurisdictions in which income is earned, limiting taxes paid on overseas income. The GOP also wants to collapse the country’s six tax brackets into two brackets, one at 10% and the other at 25%. It also aims for a 25% corporate tax rate, compared with a current 35% rate.
So the modest differences between the parties on taxes as reflected in the Bush tax cut extensions belie the pretty vast differences that would actually get voted on. This is masked by the legislation merely setting up a “process,” but this is the framework plan that House Republicans described in the Paul Ryan budget. In addition, the above-mentioned components would be required in order to set up the fast-track process to get the tax overhaul through Congress.
Under this legislation, the Ways and Means Committee would be guaranteed a vote on their tax reform within 15 days of passing it out of the committee. And it would have to get an up-or-down vote in the Senate, without the opportunity for filibuster. Obviously the Senate would have to agree to that.
Citizens for Tax Justice ran the numbers for the Camp tax plan, which would have to include the flattening of the individual income tax into the 10% and 25% rates, repeal of the AMT, reducing the corporate tax rate to 25%, adopting the “territorial” tax system that exempts offshore profits of US corporations from taxes, and collecting no more than 19% of GDP in revenue. They show that this would have to lead to a massive tax cut, mostly for corporations and the wealthy. Here’s an example of the impact on millionaires:
CTJ issued a report in March concluding that Ryan’s proposed changes to the personal income tax would provide taxpayers with income exceeding $1 million in 2014 an income tax cut of at least $187,000 on average
Like Ryan’s plan, the bill introduced by Camp and Dreier does not say which tax loopholes and tax subsidies should be closed to ensure that the tax system still collects revenue equaling between 18 and 19 percent of GDP even after the plan’s steep rate reductions and the repeal of the AMT are in effect.
We estimated that even if those with incomes exceeding $1 million were forced to give up all the tax expenditures Ryan could possibly want to take away from them — all their itemized deductions, tax credits, the exclusion for employer-provided health insurance and the deduction for health insurance for the self-employed — even then the net result for these taxpayers would be an average income tax cut of $187,000 in 2014. That’s because the income tax rate reductions Ryan proposed are so deep that they would far outweigh the loss of all these tax loopholes and tax subsidies.
So far from just a vote on the Bush tax rates, the upcoming week’s vote would enshrine the House position as in favor of a radical tax restructuring that would permanently starve the state of revenue, delivering the money instead to the richest members of society.