The United States is one of the most lightly taxed places on the planet. Dave Camp, the head of the the Republican tax-writing committee, wants to make the tax burden of Americans even lighter.
Mr. Camp proposes an overhaul of the U.S. tax system that would drop the top individual tax rate and the levy on business profits to 25 per cent from 40 per cent and 35 per cent, respectively, among many other things.
The proposal – years in the making – is a big deal; a "moment," as some in the news business like to say.
It's been three decades since anyone as senior as Mr. Camp has made such a thoughtful attempt at cleaning up the mess that is the U.S. tax code. As Prime Minister Stephen Harper and Finance Minister Jim Flaherty continue to complicate Canada's tax code with every more breaks aimed at special interests, Mr. Camp is signalling a shift in the opposite direction: his plan reduces the number of tax brackets and it contemplates ending a myriad of inefficient and costly loopholes and breaks for special interests.
Yet if it is possible to be simultaneously one step ahead and behind the times, Mr. Camp has achieved it.
Last summer, when Mr. Camp and Max Baucus, his former Democratic counterpart in the Senate who now is the U.S. ambassador in Beijing, were rounding up support for a bipartisan tax overhaul, Mr. Camp was the rare example of a Republican who was willing to be seen in public with someone from the other side. That's less common now, as House Speaker John Boehner and other Republican leaders chose at the end of 2013 to reassert themselves, passing a budget in the face of Tea Party opposition.
But the willingness of the Republican leadership to pick internal fights with its internal opposition only goes so far. When Mr. Baucus accepted President Barack Obama's offer to be the U.S. emissary in China, most in Washington decided the push to overhaul the tax code before the November midterm elections was dead. Mr. Camp's decision to proceed on his own will win praise for determination, but few in Washington will change their opinion that nothing "big" will be done in 2014.
The problems with Mr. Camp's plan aren't only those of political timing. It also does too little to confront income inequality; or, as Republicans (and, increasingly, Mr. Obama) like to call it, a gap of "opportunity."
Inequality is perhaps the most pressing societal issue of the post-crisis era. Mr. Camp proposes a levy for the U.S.'s biggest banks and limiting the size of mortgages that would be eligible for interest deductions. But these measures aren't intended to increase revenue to bolster social programs. Rather, they are intended to pay for the broader tax cuts. Mr. Camp sees no need to raise revenue. He will boast that his plan is "revenue neutral."
Mr. Camp will argue that lower individual and corporate rates will generate economic growth and jobs. But there's no guarantee that will close the gap between the richest and everyone else. The surest way to do that is to redistribute wealth to ensure society's less fortunate have access to decent nutrition, medical care and education. The United States has the capacity to do this. The country's revenue from taxes is about a quarter of gross domestic product, compared with 31 per cent in Canada, about 36 per cent in Britain, and 37 per cent in Germany, according to the Organization for Economic Co-operation and Development.
For decades, Republicans have argued that the kind of redistribution of wealth that goes on in states such as Canada and Germany is a job killer. New research by a group of IMF economists, led by Canadian Jonathan Ostry, suggests that assertion simply isn't true. They dug into a new, multi-country database and found no evidence that redistributive policies had any effect on economic growth. In fact, "faster and more durable growth seem to have followed the associated reduction in inequality," the authors wrote in a blog post that accompanied the release of their study Wednesday.
The Camp plan bears watching. While it likely will go nowhere fast, it still could form the basis of the debate that eventually leads to a tax overhaul, perhaps next year. The test of whether it becomes good policy will be if it becomes a little less neutral on the question of revenue.