The Dave Camp tax proposal marks an important point in the evolution of Republican thinking on taxes in recent years – an evolution from an approach that seeks to maximize the overall efficiency of the code in the cause of growth without regard to distributional effects to one that seeks to encourage growth, encourage work, and provide meaningful tax relief to most American families. It is probably not the endpoint of that evolution. That endpoint, which (at least in the case of the individual tax code) will probably look somewhat more like Senator Mike Lee’s tax proposal from last year, could once again give Republicans a tax-reform agenda that could be both hugely popular with voters and very helpful to economic growth. If Republicans get there by the 2016 presidential campaign, they’ll be very glad they did.
The Camp proposal is an important milestone on that path because of its author, because of its specificity, and because of the care it takes to hold middle-class families harmless while reducing tax rates and improving work incentives at the top. It is not the endpoint because a winning Republican tax reform will do a good bit more than hold those families harmless.
That this proposal has come from the chairman of the House Ways and Means Committee means it will inform future tax-reform proposals on the right. That it proposes specific, concrete changes to a large number of tax expenditures as ways of counterbalancing the effects of lower rates means it can open the path to an actual process of negotiation and legislation. Too many of our tax debates in recent years have taken place in the abstract.
And that it appears to hold middle-class families harmless (by increasing the tax burdens of some wealthier Americans while actually improving their work incentives at the margin) is important because many conservative tax proposals in recent years have funded rate reductions by increasing tax burdens in the middle. Republicans certainly can’t win on taxes if they increase the cost of living in the middle class. This more neutral approach – and it looks to be a little better than neutral, the average middle-class family of four would get a modest tax cut – allows them at least not to lose. But to win on tax reform, Republicans will need to do what they’ve always done when they’ve won on tax reform: offer serious relief to the middle-class families who want and need it.
Mike Lee’s tax proposal offers a model of how that can be done, for instance, with the help of a significantly larger child tax credit to offset today’s over-taxation of parents. It also highlights the importance of payroll tax relief—since that’s the heaviest tax burden on most American families and also the source of that over-taxation. Republicans should not abide the false wall between the income and payroll taxes.
The Camp proposal, in turn, offers some helpful refinements to the Lee proposal’s broader reforms—including a smart way to phase in lower caps on the mortgage-interest deduction (which should be lower still) while minimizing disruptions in the housing market, and an array of targeted reforms designed with the help of the sort of quick and cooperative Joint Committee on Taxation scoring that the chairman of Ways and Means can get but a junior senator cannot. They’re not all great – trimming the Earned Income Tax Credit strikes me as a bad idea, for instance, and I don’t think Republicans should index the tax brackets to chained CPI without an agreement to do the same to entitlement benefits – but many are good. Camp’s proposal also includes some useful reforms of the corporate code, and achieves its revenue neutrality by combining the effects of individual and corporate tax reforms, which the Lee proposal should as well.
The two proposals are quite compatible, and some combination is where Republicans should end up on taxes in the next few years. Here’s hoping.