Bloomberg - 125 Republicans Seen Pulling Camp to More Extensive Redo: Taxes

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By Richard Rubin

The top Republican tax writer in Congress is being pulled toward a more extensive rewrite of the U.S. code, with more than half of his party's members in the House backing proposals to rip up the rules.

More than 125 House Republicans have supported proposals that include ending the income tax and terminating the entire code in 2018 to force Congress to create a simpler system. Sixty-eight of them favor what they call a "fair tax" replacing the income, payroll and estate levies with a national sales tax. Dozens back estate-tax repeal proposals. A flat-tax bill has 10 Republicans on board.

Rank-and-file Republicans' support for bold changes may move Representative Dave Camp of Michigan, the party's top tax writer, in their direction even as he tries in coming months to draft a plan that could attract some Democratic support. Camp must try to satisfy Republicans eager for a major shakeup while leaving a path to a bipartisan agreement with the Democratic-controlled Senate and President Barack Obama.

"We'll have our share of boldness," Camp, 60, said in an interview last week. "Tax reform will be bold. There's no other way to do it, so we'll just see how bold everybody wants to be."

Camp, chairman of the Ways and Means Committee, has been meeting with all 34 first-term House Republicans to hear their ideas on taxes. There are no first-term members on the Ways and Means panel, and 44 percent of the party's members have been in the House for fewer than four years.

Flat Tax

"I love the flat tax, and I'm not afraid of getting rid of every deduction," said Representative Thomas Massie, a Kentucky Republican who became a House member in November 2012 after winning a special election to fill a vacant seat.

Camp's attempt to balance his party's preferences with his desire to make lasting law is challenged by the dynamics of the House, which has 234 Republicans and 201 Democrats. The party's proposals on the budget, agriculture programs and prioritizing U.S. debt payments were written to appeal to the Republican base, which has resisted bipartisan approaches. All three measures were passed without a single Democratic vote.

House Republicans haven't yet grappled as a group with the details of tax policy, making it hard to tell whether or how the party will coalesce on one of its top priorities.

Furthermore, a decision by lawmakers to co-sponsor a bill to enact a sales tax or terminate the tax code would still allow them to support something Camp proposes. Instead, those expressions of support send signals about their priorities to their home-district supporters and to Republican leaders.

Two Levels

Proposals like the national sales tax and flat tax probably aren't in the cards. Camp has said he wants a two-level income tax for individuals and said he would keep the system about as progressive as it is now.

He also opposes capping breaks for charitable contributions and has said the mortgage interest deduction should be approached "carefully."

Consumption taxes such as a national sales levy could make the system less progressive, or even regressive, by rewarding people who don't have to spend all their money each year on living expenses.

Representative Mark Meadows, a North Carolina Republican and fair tax cosponsor, said he's met with Camp three or four times already.

Before Meadows entered Congress this year, he was a North Carolina real-estate developer, in an industry reliant on tax breaks like the mortgage interest deduction. Now, he's working to reduce those advantages.

Dramatic Rewrite

Meadows and other junior Republican House members are among the most eager supporters of a dramatic rewrite of the U.S. tax code that could sweep away many tax breaks to pay for lower marginal rates. Meadows said he's telling his home state's real-estate industry that a big change is the best approach, even if it looks like it would cause harm to some.

"We can't do it onesie, twosie," he said, acknowledging that some taxpayers might lose cherished breaks along the way. "We'll make up for all of it with a faster-growing economy."

Camp wants to reduce the top corporate tax rate to 25 percent from 35 percent and set the top individual rate, now 39.6 percent, as close to 25 percent as possible. He would do that while raising the same amount of money for the government.

Republicans' interest in tax policy prompted House Speaker John Boehner to set aside the symbolic designation of H.R. 1 for Camp's eventual bill, signaling its priority to the party.

Attracting Democrats

The more Camp tries to satisfy the right, the harder it will be to attract Democrats in his committee or on the House floor.

"You can't doubt his sincerity," said Representative Richard Neal, a Massachusetts Democrat and a senior Ways and Means member. "But that in and of itself doesn't get you there."

Democrats aren't sure what to expect from Camp, who has held individual meetings with Democrats on his committee. He has set a goal of committee approval by the end of the year, meaning that he will need to release what's known in Congress as a chairman's mark, or complete bill, with enough time to get input from members and schedule a vote.

"The need now is to see a chairman's mark," Neal said. "At least that will crystallize the thinking."

Some Republicans may be wary of Camp's details, too.

Steve Womack, an Arkansas Republican, said there are good reasons why Congress enacted tax breaks for education and health care.

Country's Priorities

"I would like to be able to protect some of those interests but, at the same time, to what extent would we protect them?" he said. "So I'm kind of anxious to see, as it unfolds, what does the committee establish as being priorities for our country that we need to encourage through tax provisions?"

Womack, first elected in 2010, also said he wants a reduction in the total amount of taxes collected, which Camp isn't proposing.

"It's really, really important that tax relief is part of that process," Womack said.

Representative Kevin Brady of Texas, a senior Republican on Ways and Means, said committee members have been "diligent" in spelling out the tradeoffs that lawmakers will have to make.

"The freshmen and sophomores are going to be a big part of driving tax reform forward," Brady said. He said he hoped Republicans would be excited by lowering individual tax rates to about the levels they reached under President Ronald Reagan.

"The House has to pass its very best idea, hopefully bipartisan," Brady said. "But if not, we know the ultimate product with this Senate and this president will be bipartisan, at least if we're going to do tax reform in the next three years."

The Camp bill will be H.R. 1. The Fair Tax bill is H.R. 25. The flat tax bill is H.R. 1040. The tax code termination bill is H.R. 352.

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