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Thursday, February 27, 2014

Tax Reform for Growth -- Review & Outlook, The Wall Street Journal

Dave Camp's plan would yield $700 billion in extra 'dynamic' revenue.

The smarter Republicans are trying to reclaim the mantle of economic opportunity, and on Wednesday Dave Camp climbed into this phone booth by proposing a detailed tax reform. The Chairman of the tax-writing Ways and Means Committee wants to lower tax rates and create a fairer, more efficient code, and his plan ought to shift the debate over taxes to growth from redistribution.

The American tax system has changed for the worse since the last reform in 1986, and Mr. Camp has spent three years learning about the dispiriting specifics, including more than 30 hearings. The Michigan Republican is a serious legislator who cares about policy, and his effort shows. We disagree with many details in his 979-page bill, but overall his direction is right. Even if his bill doesn't pass this year, its legwork will inform any future reform.

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The heart of the Camp plan would collapse today's seven income tax brackets into three, with about 99% of taxpayers paying 10% or 25%. The top statutory marginal rate would fall to 35% from 39.6% for individuals earning wage income over $400,000 ($450,000 for joint filers). 

Mr. Camp would also simplify the tax code whose 70,000 pages defy human comprehension and cost $168 billion annually in compliance spending. The plan would sweep out this warren of deductions, credits and interest group carve-outs and raise the standard deduction to $11,000 for individuals and $22,000 for couples. About 95% of taxpayers would no longer itemize, according to estimates from the Joint Tax Committee, or JTC. 

Mostly this modernization involves consolidating redundant provisions like the 15 tax breaks for higher education or repealing the Alternative Minimum Tax. For the record, Mr. Camp preserves the mortgage interest deduction for all current loans and, for new mortgages, lowers the cap to $500,000 from $1 million of mortgage debt. For the 5% of filers who would itemize, the plan retains the charitable deduction for contributions greater than 2% of income.
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