Rep. Dave Camp (R-Mich.), chairman of the House Ways and Means Committee, is out with a widely anticipated proposal to overhaul the tax code. It's chock-full of changes to the personal and business tax codes, affecting a wide swath of the economy. Here are four charts, based on analyses by the bipartisan Joint Tax Committee, that explain the impact of the proposal on taxpayers and the economy.
1) Camp's proposal would consolidate today's seven tax brackets into three main brackets, while getting rid of many tax deductions and exemptions. The simpler tax scheme aims to boost economic growth and reduce the burden of filing taxes on most Americans.
2) The tax plan raises revenue by eliminating oodles of deductions and other tax breaks, which more than offsets a reduction in tax rates. But it also removes the alternative minimum tax that had substantially boosted the tax bills of many upper middle-class families and businesses. As a result, the proposal is effectively revenue neutral, projected to raise just $3 billion over 10 years.
3) The next chart shows the percentage change in federal taxes paid by income group. As you can see, households earning $40,000 to $50,000 a year would see the largest reduction in federal taxes. Taxes would rise slightly for people earning over $100,000 a year, with the biggest hit coming for people who earn between $500,000 and $1 million a year.
4) The final chart shows that the proposal would have a modest effect on economic activity. You can ignore all the acronyms. The basic message is that the Joint Tax Committee expects the economy would grow an additional 0.1 to 1.5 percent (on top of inflation) if this legislation was passed into law. A key reason is that the proposal reduces the tax on labor, encouraging more people to work and driving higher economic activity.