Rep. Dave Camp (R-Mich.) divided Washington’s powerful industry groups into warring camps on Wednesday with his no-holds-barred proposal for tax reform.
Industry groups on the losing end of Camp’s proposal were swift to denounce it, with one of the most vocal protests coming from the hedge fund industry, which saw its treasured carried-interest provision singled out for elimination.
“Chairman Camp's proposal penalizes long-term capital investment, which he and other members of the House Ways and Means Committee have purported to support,” said Steve Judge, president and CEO of the Private Equity Growth Capital Council.
He said Camp’s plan essentially creates a 40 percent tax increase that would discourage investment in the United States.
“It is our hope that as the debate over tax reform unfolds, policymakers will utilize the opportunity to reform the tax code as a way to encourage, not undermine, capital investment in America."
Under Camp’s plan, the top income tax rate for individuals would drop to 25 percent from 39.6 percent while adding a new 10 percent surtax on some earned income above about $450,000. The top corporate income tax rate would fall from 35 percent to 25 percent.
Lobbyists worked behind the scenes for years to try and influence Camp’s proposal, earning millions of dollars in fees from companies and industries afraid of taking a financial hit on the first overhaul of the tax code since 1986.
While Camp’s proposal appears to be going nowhere in Congress, elements of the 1,000-page plan could be revived in future tax reform efforts — and that has many interest groups worried.
Major players in the financial industry lined up to denounce Camp’s proposal to create a new quarterly fee for financial institutions with assets above $500 billion.
“At a time when policymakers want more loans to be made, this arbitrary bank tax would do precisely the opposite,” said Frank Keating, president and CEO of the American Bankers Association.
“This tax will cause investors to turn away from the banking industry, making it harder to meet the stringent capital standards demanded by regulators and dramatically reducing resources that underpin every loan,” Keating said.
Kenneth Bentsen Jr., president and CEO of SIFMA, called the new tax on financial institutions an “unprecedented imposition” on a single sector, “that is contradictory to the principles of tax reform and simplicity.”
And Tony Fratto, managing partner at Hamilton Place Strategies and former U.S. Treasury and White House official, said the proposal for a new tax on banks “violates every principle” of Camp’s stated goals for tax reform.
“It will restrict growth, add complexity, and create new distortions,” Fratto argued.
Camp’s plan also targets two of the most popular carve-outs in the tax code: the deductions for mortgage interest and for state and local property taxes.
For mortgages taken out after 2018, the plan would cap deductible mortgage interest for loans of at least $500,000, down from the current level of $1 million.
The plan also would nix the ability of taxpayers to deduct state and local income taxes, except for those that are paid to run a business.
The National Association of Realtors expressed disappointment over both proposals, saying they would “impact every single American, either directly or indirectly.”
“We strongly oppose severely altering the rules that govern ownership and investment in real estate,” NAR President Steve Brown said.
But not every industry group felt burned by Camp’s plan.
Credit unions, for instance, applauded Camp for preserving their tax exemption, which rivals in the banking industry have long said should be eliminated.
“Congress has no appetite for repealing credit unions’ federal tax exemption,” said National Association of Federal Credit Unions President and CEO Dan Berger.
The divide between winners and losers extended to the corporate side of the tax reform equation.
The Business Roundtable, one of the leading champions of corporate tax reform, said the proposed rate cut would make U.S. firms more competitive.
“Business Roundtable’s longstanding principles for reform of the corporate tax system are to Chairman Camp’s draft moves toward achieving these two key corporate tax reform priorities, but we believe that further work is needed to address additional competitiveness concerns and to increase growth,” said Roundtable President John Engler.
The Retail Industry Leaders Association (RILA) and the National Retail Federation also welcomed the reduction of the corporate tax rate.
RILA’s Kirt Johnson, vice president of tax policy, called reducing the corporate rate to 25 percent “critical to a reform effort that will stimulate economic growth, create jobs, and improve our country’s competitiveness.”
Others groups reacted with cautious optimism.
The National Association of Manufacturers (NAM) called it “a major step toward enacting comprehensive tax reform, and manufacturers look forward to working with the committee to ensure the best outcome.”
“Comprehensive reform carries with it serious effects on our economy, along with the potential to unleash significant growth if done well,” said NAM Vice President of Tax and Domestic Economic Policy Dorothy Coleman.
USTelecom President Walter McCormick said lowering the corporate tax rate would “make U.S. companies more competitive in the world economy.”
But concerns were rampant about other aspects of Camp’s framework.
Financial Services Roundtable CEO Tim Pawlenty warned that Camp’s proposal to scale back the tax breaks for retirement savings and lending would slow the economy. He also expressed concerns about the proposed tax on financial institutions.
“The last thing entrepreneurs, small businesses and consumers need in this still tenuous economy is a tax on lending. Increasing the cost of access to investment capital is a bad idea,” he said.
The advertising industry expressed opposition to Camp’s call to cut the deduction for advertising expenses in half in the first year.
“Camp’s proposal is a major new tax liability for businesses that would increase the cost of advertising and cause a substantial disincentive for companies to spend additional advertising dollars,” said Bob Liodice, president and CEO of the Association of National Advertisers.
The gas and oil lobbies took issue with Camp’s plan for ending what’s known as the last in, first out accounting method for businesses.
“America’s oil and natural gas industry already generates $85 million per day for the federal government,” said American Petroleum Institute President and CEO Jack Gerard. “Higher taxes on energy and manufacturing would hit American families and workers by undermining private investment, job creation, energy production and government revenue.”
Camp was defiant Wednesday in the face of the criticism, arguing the average person was ready for a tax code no longer littered with “special interest handouts.”
“You’re going to hear a lot about one provision or another,” Camp told reporters at a news conference introducing his long-awaited draft. “The truth is people want a simpler, fairer and flatter tax code.”