Rep. Dave Camp won’t be able to list tax reform among his accomplishments as chairman of the House Ways and Means Committee, but he is looking to push through several major tax changes that would go a long way toward making the job easier for his successor.
As Congress tries to extend a package of expiring tax provisions known as “extenders,” Camp, who is retiring at the end of the year, is aiming to make permanent key business tax breaks and deductions, a move that would not only satisfy corporate calls for certainty but also lower the baseline amount of tax revenues.
That would make it easier for his Republican successor, widely expected to be Rep. Paul Ryan of Wisconsin, to lower tax rates as part of a comprehensive tax reform.
Camp and other key players are holding their cards close to the vest as Congress debates tax and fiscal matters during the lame-duck session, but he has maintained that it is critical to make some of the 55 expiring provisions permanent.
“That would help cement his legacy,” said one analyst closely involved in Congress’ tax deliberations. “Obviously, he‘s going to fall short” on tax reform before he retires, the person said, but he could achieve more certainty for business and also “rebuild the baseline for tax reform, which would ease the job of the next chairman.”
Ryan has said that making some extenders permanent would be a crucial part of his own push for tax reform.
At an event in Washington in September, Ryan explained that Camp’s tax reform discussion draft, announced in February to little support, was doomed by Camp having to work with an official baseline that assumed that the extenders all expired and were not renewed, when in fact Congress regularly re-ups them.
Camp had to chase an “artificial revenue target,” Ryan said, meaning that, to lower rates, Camp had to cut popular deductions such as the one for mortgage interest for homeowners to make the plan revenue-neutral.
The difference in the baseline with and without the extenders included is about 0.3 percentage points of U.S. gross domestic product, said Ryan Ellis, a tax expert for Americans for Tax Reform, a group that advocates lower taxes. With all the extenders made permanent, federal revenues would be about 17.8 percent of GDP per year, rather than 18.1 percent, according to Ellis’ calculations.
“That’s a massive, in tax terms, difference,” said Ellis. “To the extent that number shrinks, it’s easier to do tax reform.”
Negotiations over how to pass extenders are continuing, and it’s not clear how many, if any, of the provisions Republicans favor could be made permanent. Ellis suggested it wouldn’t be realistic for them to get enough extenders made permanent to close anywhere near half of the 0.3 percent of GDP gap between baselines closed.
Nevertheless, even individual provisions that both sides have said they would like to make permanent could have a sizable impact on the baseline.
Just the research and experimentation business tax credit, the provision most favored by both sides, would cost $80 billion over 10 years, according to the Committee for Responsible Federal Budget, which opposes renewing extenders without making up the lost funds elsewhere in the budget. That $80 billion would be money that wouldn’t have to be made up by closing other tax preferences in a tax-code overhaul.
Other outside analysts are concerned that some provisions will be included in the eventual extenders deal to reduce the baseline even though it would be bad policy.
Chuck Marr, director of federal tax policy at the Center on Budget and Policy Priorities, a nonpartisan think tank, warned that he was concerned about bonus depreciation, a provision that allows business to take larger upfront tax deductions for certain businesses and was implemented in 2008 as a temporary stimulus measure.
The House passed a Camp bill to make bonus depreciation permanent over the summer, a step that Marr warned in a note published Thursday would be counterproductive and conflict with efforts to enact larger tax reform. Camp’s own broader tax reform moved in the opposite direction.
“There’s no question, I think, that the issue of revenue is a major parameter” in shaping the debate over taxes in the lame duck, Marr told the Washington Examiner. “House Republicans have been trying to make it so its easier to hit their target.”
But he argued that aiming to lower the baseline revenue was fiscally irresponsible. “You had to pay for unemployment insurance, you had to pay for sequester relief — it’s a double standard,” he said.
