GOP Tax Plan Borrows from Obama, Hits Wall Street
House Republicans are borrowing ideas from President Barack Obama for an election-year plan to overhaul the nation's tax laws.
But here's a reality check: The plan has almost no chance of becoming law this year, and even House Speaker John Boehner, R-Ohio, distanced himself from the details Wednesday. Still, it could become an important political document as the elections approach in November.
Investment managers, big banks and owners of corporate jets would get hit with new or higher taxes, billions would be set aside for public works projects, and some wealthy business partners no longer would benefit from a tax provision.
While those are ideas championed by Obama, who would direct the new revenue toward more government spending, Republicans would use it to lower income tax rates for most families and corporations.
The top income tax rate would drop from 39.6 percent to 25 percent, but the plan would impose a new 10 percent surtax on some earned income above about $450,000. The top corporate income tax rate would fall from 35 percent to 25 percent.
The plan would bolster the standard deduction and increase the child tax credit while trimming other deductions, exemptions and credits. As a result, 95 percent of filers would take the standard deduction rather than itemize, according to analysis by the nonpartisan Joint Committee on Taxation. Currently, about one-third of filers itemize their deductions.
Should Republicans choose to embrace the plan, they could use it to highlight their efforts to simplify tax laws and spur economic growth. Democrats surely would rely on it to point out cherished tax breaks that would be cut.
Boehner, already wary of some of the unpleasant details, would not promise a vote in the House this year. When asked about the details, Boehner said, "Blah, blah, blah, blah. Listen, there's a conversation that needs to begin. This is the beginning of the conversation."
When asked whether the Republican Party stood behind the plan, Boehner said, "You're getting a little bit ahead of yourself."
Three years in the making, the plan was written by Rep. Dave Camp, R-Mich., chairman of the tax-writing House Ways and Means Committee. It would mark the first overhaul of the tax code since 1986.
"This is a comprehensive plan that reflects input and ideas championed by Congress, the administration and, most importantly, the American people," said Camp. "In other words, it recognizes that everyone is a part of this effort and can benefit when we have a code that is simpler and fairer."
The plan is designed to raise about the same amount of tax revenue as the current system, though the overhauled system would be much simpler. It also is designed so that different income groups continue to pay about the same as they do today. Individual taxpayers could see big changes, depending on their circumstances.
Taxes on investments would be cut.
But, Camp said, a generous tax break enjoyed by investment managers, known as "carried interest," would be eliminated. Huge banks with more than $500 billion in assets would be hit with a fee. Corporate jet owners would have to wait longer to write off the cost of buying them.
Camp said the plan would eliminate a provision that allows wealthy entrepreneurs, consultants, lawyers, doctors and other professionals to avoid Medicare payroll taxes by setting up corporations and accepting the bulk of their compensation as business income instead of wages. All wages are subject to the 2.9 percent Medicare tax. An additional 0.9 percent tax is applied to wages above $125,000 for a single person and $250,000 for a married couple filing jointly.
The plan would shore up the cash-strapped highway trust fund by dedicating $126.5 billion in corporate tax revenue to the fund over the next eight years. The fund, which pays for infrastructure improvements, faces annual shortfalls.