On U.S. Tax Reform, Obama And Republican Rival On Same Page
U.S. President Barack Obama’s call on Tuesday for an end to billions of dollars in tax breaks echoes a 979-page draft reform plan last week from Dave Camp, the top Republican tax writer in the House of Representatives.
Given the gridlock in Washington, neither the Democrat Obama, who included the tax reforms in his fiscal 2015 budget, nor Camp, the Ways and Means Committee chairman, has much chance of success.
The proposals differ significantly. Camp would eliminate scores of tax breaks while lowering tax rates for individuals and businesses. Obama proposes repealing fewer tax breaks and using the tax savings in part to pay for more aid to low-income workers. Obama’s budget calls for increasing tax breaks for clean energy, benefits that Camp’s plan would eliminate.
But the overlap may one day form the basis for the first tax revamp since 1986. Here is a list of tax changes in the president’s budget that Camp also highlighted for reform.
* Carried interest.
The “carried interest” tax provision lets private equity partners pay lower taxes on large portions of their incomes. Camp wants to eliminate this tax break, putting him at odds with other Republicans who steadfastly defend it. Obama’s budget reiterates his longstanding call for repealing carried interest, which helped former Republican presidential hopeful Mitt Romney pay a low effective tax rate. Eliminating carried interest could raise $17.4 billion over 10 years, according to a November 2013 estimate from the Congressional Budget Office.
* Taxes on the wealthy.
Obama renews past tax proposals for raising taxes on the wealthy, including the “Buffett tax” that phases in a 30-percent tax rate on income above $1 million and caps on itemized deductions. Camp’s plan caps itemized deductions for individuals making $400,000 a year. It also limits tax savings from municipal bond interest, healthcare and retirement contributions.
* Self-employment payroll taxes.
Obama and Camp both favor repealing a tax loophole benefiting certain self-employed individuals. Wealthy individuals working for themselves, especially those offering consulting services, can avoid paying taxes for Medicare and Social Security programs. In his budget, Obama says this loophole costs $5 billion a year in lost revenue.
* Oil and gas.
While Republicans usually defend corporate oil and gas tax breaks whenever Obama targets them for repeal, Camp’s reform plan would eliminate the industry’s tax breaks and preferred accounting rules. Obama recommends repealing $4 billion in tax subsidies for oil, gas and other fossil fuel producers.
* Retirement savings reform.
Obama proposes capping the amount of money wealthy individuals can put in tax-protected savings accounts for retirement. In addition to setting similar retirement savings limits for the wealthy, Camp’s reform plan eliminates the traditional “Individual Retirement Account” (IRA) in favor of the Roth IRA, which allows older Americans to withdraw their savings tax-free in retirement.
* Research and development tax credit.
Businesses can claim a tax credit when they book costs for research expenses and employees doing innovative work. In a rare instance of agreement to bolster a tax expenditure, both Obama and Camp want to make permanent the R&D tax credit. The tax credit expired for 2014 and has yet to be renewed by Congress this year.
* Prevent corporate tax avoidance.
Obama’s aims to crack down on what he sees as offshore corporate tax loopholes. To prevent corporate tax dodging, Obama’s budget would limit the ability of U.S. technology companies to shift profits abroad by housing valuable software overseas. Camp proposes limiting offshore tax avoidance while lowering corporate taxes to encourage U.S. companies to repatriate foreign profits.