Before he retired, Rep. Dave Camp (R-Mich.) put years of work into his plan to overhaul the country's taxes — attaining, according to Congress's independent referees, that elusive and delicate balance that lawmakers aiming at tax reform have not achieved since 1986.
Camp's plan would have made the tax code simpler and more transparent, without increasing the burden on the rich or the poor. At the same time, the plan would not have reduced the overall revenue the government collects, so there would be enough money to keep the lights on in federal offices.
Camp, who retired two years ago, was respected as one of Congress's foremost tax experts. As President Trump and GOP lawmakers prepare to reform the system, H.R. 1 — Camp's plan — might seem like a natural point of departure.
Yet his work might already be obsolete, because of a change in Congress's rules imposed by Republicans. Today reformers might choose a different strategy, Camp said in a recent interview with The Washington Post.
Specifically, the nonpartisan referees at the Congressional Budget Office and Joint Committee on Taxation are now required to evaluate how legislation would affect not only federal finances, but also the broader national economy. Under the new “dynamic” rules, as they're known — as opposed to the old-fashioned “static” assessments — some ideas for the tax code might have a better chance of passage now than they did before.
One example cited by Camp relates to companies' assets such as machinery and equipment. For many years, critics said that corporations were getting a break on these assets, known as accelerated depreciation. Camp's plan would have limited that break.
Many economists, however, have said that depreciation encouraging companies to invest in new capital promotes hiring and the economy as a whole. And the “blueprint” for tax reform that Republicans put forward last year would make the break much more generous, an approach known as “full expensing.”
“It’s in a post-dynamic-score environment that they’re addressing this,” Camp said. “I think the attempt at full expensing is to really, sort of, push the growth.”
Camp, now a senior policy adviser at PricewaterhouseCoopers, also talked about the Republican proposal for a border adjustment, a controversial plan that some worry could increase the prices consumers pay for imported goods. Despite the Republican failure to advance a bill to undo the Affordable Care Act, Camp said he was “cautiously optimistic” that Congress could take on the even more complicated task of reforming the tax code.
A transcript of the interview is below, edited for length.
The first question with tax reform is, I think, can Republicans do it? And the second question is maybe the more interesting one: If they can do it, what can they do exactly?
Well, I do think that the possibility for tax reform looks good, but having said that, it’s a very complicated procedure both substantively and politically. A lot of work has been done over the last several years on tax reform in the House and the Senate, by members of both parties. And I think there is a common sense that our tax code is broken, and that we’re out of step with the rest of the world on many of our tax policies, and that tax reform could be one way to bring more prosperity to individuals and families.
At this point, it’s all still doable. The question, obviously, is will there be enough political consensus to move some transformational tax policy forward? And it’s just too soon to tell. I think, like with most important legislation, it would be helpful if it’s bipartisan so that the policies adopted are lasting.
I imagine that fewer Democrats would support a proposal to lower rates if revenue overall declined significantly, so what’s your view on revenue neutrality at this point?
Revenue neutrality is one of the larger decisions that need to be made. Is this going to be an approach that’s going to be revenue neutral, or is this going to be an approach that’s revenue neutral based on dynamic scoring?
Do you feel that there is a possibility of bipartisanship in the current political environment? And if so, what do Republicans need to do to get Democrats on board with reform?
So I think that some of this has been going on behind the scenes as well, certainly simply beginning by having conversations with members of the other party — those in the leadership positions, and those in the Ways and Means Committee — about what their key issues might be. And beginning those dialogues about what their priorities are. By engaging and discussing, that’s something that can be done. I understand is being done as we speak.
You seem pretty optimistic.
Eh, I’m cautiously optimistic. I think this is our best opportunity for tax reform in a very long time, but again, it is a very challenging process, and it’s very heavy lifting. I think it’s worth investing the time and effort to try to see if something can be successful.
And what about your own plan, the one that you put together while you were in Congress? Do you imagine that if Republicans were to go back to that plan today, that they could get the votes to move it through?
Let me backtrack. I don’t believe there’s only one way to do tax reform. I think there’s a number of alternatives and decision points throughout a process like this, and it doesn’t have to be all like H.R. 1 or all like other proposals that have been discussed in the past. Obviously, the kinds of assumptions I made in putting together H.R. 1 aren’t necessarily the same assumptions you might make today.
Certainly the significant decisions, like what baseline you might use, and whether you’re going to be revenue neutral on a static or a dynamic basis are important questions that have to be resolved before you can begin to put together an approach.
Okay, so, I’d like to talk about a couple of specific questions about the tax system. Do you think there are advantages that might make a border adjustment worth doing despite all the controversy?
Having read the “blueprint,” one of the aspects of the border adjustment is to try to achieve policy that will result in significant economic growth in the United States and to level the playing field between us and our competitors, but as we’ve heard in the public debate, there are different views of the border adjustment, depending on whether you’re an importer or an exporter.
We haven’t seen the specific legislation, so I think that will be important to see when and if that is released: what the details of the language will be and what it will mean for the country as a whole and for those who have specific interests or agendas.
There are retailers and other importers who say that a border adjustment would be essentially a new tax on their products. Brady doesn’t see it that way. Do you?
I mean, the border adjustment is moving to a new structure and type of taxation, moving away from an income base, to a consumption-based approach.
So, it’s a different tax, but not a new tax.
It’s a different type of taxation, and it’s a new structure certainly for the United States, because it would tax imports into the United States as well as consumption within the United States, and so it would tax advantage exports.
I should say: There are economists who say that any advantage or disadvantage as a result of the border adjustment would even out because currency would appreciate on a macro level, and therefore there really would be no disadvantage to importers.
Moving on. Have your views on depreciation changed? I mean, is it a tax break, or is it valuable economic stimulus?
In terms of depreciation, I had the restriction that I would be revenue neutral on a static basis, and that I would be distributionally neutral as well. And so in order to reduce rates and do that, I made the decision to lengthen the depreciation schedule.
But the tax bill that I worked on, H.R. 1, was the first tax bill to be dynamically scored. So that bill was put together without the advantage of dynamic scoring, and one of the things that dynamic scoring responds to is full expensing. And so full expensing is an attempt to really push the growth analysis of any tax proposal, and when you do that, it means that you obviously have a growing economy. And with that, flowing from that, is more jobs and higher wages for those employed folks. So I think the attempt at full expensing is to really sort of push the growth.
Okay, and then my final question: Where do you think the corporate rate is going to end up? It’s right now about 35 percent. Trump proposed 15 percent during the campaign. Do you have any speculation about what that rate will be in any legislation that’s moved through Congress, or what it should be?
It will depend on so many other policies that are adopted, and this is all interrelated policy, and obviously it appears that the “blueprint,” they feel they can get the corporate rate to 20 percent. H.R. 1 got the corporate rate to 25 percent. President Obama’s framework was at 28 percent. So it really depends on the other policies that you adopt.
I do think that there’s a bipartisan understanding that the corporate rate is too high, that because we’re the highest statutory corporate rate of any major economy, we’re out of step with the rest of the world and there’s a sense that if we can bring the corporate rate down … that will mean corporate headquarters will remain in the United States, and that those high-paying corporate jobs will all remain in the United States, and that the growth in those areas will remain in the United States.