We have noted many discussions over the last few years concerning the need for tax reform. Almost everyone is in agreement that tax reform is needed, as annual additions and edits to the tax code have left us with overly complex and burdensome compliance requirements for individuals and businesses alike. However, once the conversation gets past the general agreement that reform is needed, we come face-to-face with the complexities of crafting real tax reform that can be passed by Congress.
Ways and Means Committee Chairman Rep. Dave Camp (R-Mi.) has been a vocal proponent of tax reform and has kept his promise to develop reform legislation. His plan was finally realized this week as he released his version of a “Discussion Draft for the Tax Reform Act of 2014.” While most note the chairman’s efforts as a bold attempt at an initial proposal, the general consensus in Washington remains the same: Despite the fact that both parties generally agree that tax reform is needed, tax reform will not happen in 2014, especially because this is an election year in which all members of the House of Representatives are up for re-election.
The chairman’s draft seeks to lower the top corporate income tax rate from 35 to 25 percent while eliminating scores of credits and deductions. The seven current tax rates for individual filers, which range from 10 percent to 39.6 percent, would be consolidated into three: 10 percent, 25 percent and 35 percent, with a surtax placed on certain high earners.
Camp’s proposal sets a positive tone in making certain key tax provisions permanent. Under his plan, the small business expensing provision (IRC sec. 179) would be made permanent — although at a maximum of $250,000 annually. The research and experimentation tax credit would finally be made permanent, and its calculation would be simplified. On the negative side, certain tax breaks — like the exclusion of gain on the sale of small business stock — would be repealed.
While Camp’s proposal will certainly generate scores of comments and intensive lobbying from both sides, it faces steep challenges in this Congress. Rather, this draft will service as a possible starting point for future tax reform efforts in the next Congress.
