The Transylvania Times: No True Tax Reform
media mentionWithin the past few days, thousands of North Carolinians have been scurrying to complete and file their state and federal income tax returns. As always, there is a call for a simpler and more equitable tax code. As usual, very little is done to make taxes simpler or achieve a more equitable system.
The reason is fairly simple. Those who have the authority to change the tax code lack the political will because those who hold the purse strings to their campaigns like things the way they are.
Not that a few politicians haven’t tried. For the past three years, Rep. David Camp, a Republican from Michigan and head of the House Ways and Means Committee, has been working on a true tax reform plan that he revealed in February of this year. His goal has been to develop a simpler, fairer tax code that would stimulate the economy.
Camp’s proposal would cut both individual and corporate income taxes. Corporate tax rates would be cut from 35 to 25 percent. Individual tax rate structure would be reduced to three standards: 10, 25 and 35 percent.
But in an effort to simplify the tax code, his proposal also does away with numerous exemptions and loopholes. And there is the rub. Camp’s proposal would reduce the mortgage interest deduction for some and eliminate state and local tax deductions. Those deductions benefit homeowners, realtors, builders, as well as people who pay state or local income tax. It’s doubtful politicians would reduce the mortgage interest deduction because it would affect those with homes costing more than $500,000, and the National Association of Realtors tops the campaign contributions list for 2013-14 with $2,126,859, according to Open Secrets, a nonpartisan group that follows campaign contributions.
In fact, the finance, insurance and real estate (FIRE) sector are the largest contributors to political campaigns. And that is why the tax code also will not be more equitable. For example, Camp’s proposal also calls for counting “carried interest” to be counted as income. According to the New York Times, “carried interest” is a “tax dodge” that allows what is really income to be counted as a capital gains and be taxed at a lower rate. This “tax dodge” allowed presidential candidate and multimillionaire Mitt Romney to pay an effective tax rate of less than 15 percent.
Camp himself has cited a Wall Street Journal article on Leon Black, a private equity firm manager who received more than $546 million in dividends and other compensation when he reported a salary of $100,000 in 2013.
“Clearly more of that income was salary than that small percentage,” Camp told Time magazine. “The way carried interest is treated now is not an accurate reflection of reality.”
But soon after those in the financial sector learned of this provision, they began to rally opposition to Camp’s proposal. In fact, the Wall Street Journal reported that Goldman Sachs delayed plans to hold a fundraiser for the National Republican Congressional Committee due to “concerns about Mr. Camp’s tax proposal.”
It’s doubtful corporations like Duke Energy also would agree to closing loopholes since it has paid not federal corporate taxes since 2008, even though it has made $9 billion in profit since that time. Other large corporations also have used loopholes to avoid paying any income taxes, and many have received rebates.
The situation in North Carolina is not much better. Duke has paid $3 million in state income taxes since 2010 but received $300 million in tax rebates, according to Citizens for Tax Justice and the Institute on Taxation and Economic Policy.
And while North Carolina’s General Assembly claimed it reformed taxes this year, it truly did not make the tax code any simpler or more equitable. If it did anything, it made the system more inequitable by shifting more of the burden to the middle and lower class. There are still tax breaks for items such as yachts, for example.
In general, and in theory, most Americans agree that the tax laws need to be simplified, and millions believe they should be made more equitable. But the cold reality is that those who have lobbied heavily and contributed millions to political campaigns prefer the present system, especially if any reform closes their special interest loopholes.