27 Feb Camp Overhaul Would Add Surtax for High Earners, Bank Asset Tax
A tax overhaul plan from House Ways and Means Chairman Dave Camp would lower top individual and corporate income tax rates while imposing a surtax on wealthy individuals and the biggest banks and insurers, according to tax lobbyists and lawyers.
The existing seven marginal brackets for individual income taxes would be reduced to two, at rates of 10 percent and 25 percent. A 10 percent surtax would be applied to certain professionals making more than $450,000 per year.
The details are part of an ambitious plan to rewrite the tax code from top to bottom; the Michigan Republican plans to release the plan Wednesday into a Congress that appears uninterested in tackling anything that includes tough political choices. Although Camp’s plan is aimed at being revenue neutral, it would redraw large parts of the tax code with far-reaching, high-stakes tax policy changes that will trigger a large battle between political and corporate interests.
Senate Minority Leader Mitch McConnell of Kentucky effectively dismissed an effort Camp is launching in an election year. “I have no hope for that happening this year,” he told reporters on Tuesday.
And Camp was likely to stand without anyone from leadership at the unveiling of the plan Wednesday afternoon, according to aides. “I believe his was the only name on the advisory,” said Michael Steel, a spokesman for House Speaker John A. Boehner of Ohio.
Camp’s plan is particularly troublesome for Republicans because provisions such as the surtax recognize Democratic priorities for progressivity in the tax code, and questions over corporate tax breaks may draw the ire of a business community that traditionally supports the GOP.
Under one major provision, banks and insurance firms with more than $500 billion in total assets would be hit with a tax of 3.5 basis points each quarter.
Capital gains also would be taxed differently, tax officials said, with 40 percent of capital gains excluded and the rest taxed as regular wages. It’s not clear whether the 10 percent surtax would also apply to the remaining capital gains for taxpayers above the $450,000 threshold.
Camp spokeswoman Michelle Dimarob would not comment on the details of the plan in advance of Camp’s release.
Big banks are a big target, for reasons both political and revenue-driven, but Camp’s plan now puts a top Republican behind an idea originally floated by the White House in 2010. That suggests the proposal has a greater chance of being enacted at some point, whether as part of a tax overhaul or as a cost offset.
“It looks like this is set in stone, something we hoped could get turned around,” said Alison Hawkins, vice president of communications at the Financial Services Roundtable.
“The nation’s biggest financial institutions are hardly a sympathetic constituency and our sense is that this proposal is likely to carry over to the next Congress, especially given that it was introduced by a leading Republican,” said Isaac Boltanksy, a financial services policy analyst at Compass Point Research & Trading.
Two tax lawyers familiar with the broad contours of the plan said they expected the corporate rate to be 25 percent, as Camp has long promised. The question for business will be how Camp pays for cutting the top rate from 35 percent.
“Corporate America is very nervous about the pay-fors, because to get down to the rates he’s talking about you have to get rid of a lot of preferences,” said Baker Hostetler partner Paul Schmidt, former legislative counsel to the Joint Committee on Taxation.
It’s expected that the section 199 deduction for manufacturing may be eliminated, and that accelerated depreciation will be lengthened. The mortgage deduction for second homes is also rumored to be on the chopping block, a move that would rattle both the housing industry and the markets, according to Baker Hostetler partner Jeff Paravano, a former advisor at Treasury.
The possibility that eliminated deductions could shake the markets, Paravano said, “also leads me to think it’s going to be an incomplete list” of revenue-raisers, including mostly proposals that Democrats have endorsed in the past.