Something extraordinary happened last week: a politician went against the dogma of his own party and proposed something that might actually boost our economy and improve our country’s long-term fiscal health.
Of course, the plan has no chance of getting a vote, let alone passing congress. And even if it did manage to pass, President Obama would veto it before his first morning cigarette. But just because Representative Dave Camp’s tax reform bill is a lost cause doesn’t mean it’s not a worthy one.
Way back in the 1970s, President Jimmy Carter called the federal tax code “a disgrace to the human race.” Nearly forty years later, it’s three times larger and hopelessly more complex. Most economists agree that a simpler code would spur economic growth. Camp’s bill would make this happen by shrinking the number of tax brackets and eliminating all sorts of special benefits and giveaways. It would also raise revenue by curtailing or cutting those things people euphemistically call “deductions,” especially those for health care, mortgage interest, retirement plans, and state and local income taxes. (That last deduction is particularly unfair, in my opinion. It makes no sense that folks in states with no state income tax–like Texas, Florida, Washington and Tennessee–essentially subsidize taxpayers in high-tax states like California and New York.) In addition, Camp’s plan would close the “carried interest” loophole that lets rich guys like me and Warren Buffett pay a lower tax rate than our employees, force upper-class earners to pay taxes on investments like municipal bonds, and impose a new tax on big banks.
Taxing Wall Street and rich people? You’d think Camp was a dyed-in-the-wool liberal. But he’s not. He’s one of the most conservative members of congress. The Conservative Union gives him an 84% rating, the same score they give Mitt Romney’s former running mate, Rep. Paul Ryan. (No Democrat scores higher than 60 percent.) And yet, he’s not getting any support from his own party or those on the left.
The main reason Camp’s bill is dead-on-arrival, especially among liberal politicians, is that it goes after the biggest sacred cow tax giveaway of them all–the mortgage interest deduction. Most politicians would rather outlaw fireworks on the Fourth of July than do anything that would negatively affect homeowners. But, contrary to popular opinion, the mortgage interest deduction doesn’t do much for working and middle class earners, because the large majority of them do not itemize their taxes. Instead, like the carried interest loophole and other deductions, the MID overwhelmingly benefits the rich. From Forbes:
[I]t turns out the mortgage interest deduction isn’t the middle-class savior it is often made out to be. Most of the MID 2012 tax benefits went to people making six figures or more. Households earning over $100,000 in 2012 claimed 77.3 percent of the total MID tax savings … Meanwhile, homeowners earning between $30,000 and $40,000 saved an average of $587 in 2012, or $49 a month off their mortgage. For households making between $40,000 and $50,000 the average tax savings was $54 a month. Combined these groups represented just 8 percent of MID claims.
To recap: the MID is politically untouchable because it supposedly benefits the struggling middle and working classes. And yet, it only helps a small percentage of homeowners in those tax brackets–and only provides them with about fifty bucks a month in savings.
That really is a disgrace.