There is no chance of it being acted on this Congress, but House Ways and Means Chairman Dave Camp on Wednesday will unveil "draft legislation" to overhaul the nation's tax code, proposing major changes for both individuals and businesses.
Camp's proposals would lower the corporate tax rate from 35 percent to 25 percent, and for top individual earners from 39.6 percent to 25 percent. But his plan goes much wider.
It includes a cap on new home mortgage interest deductions at $500,000, repeal of the state and local tax deduction, reductions in the earned income tax credit for low-wage earners, and conversion of certain 401(k) accounts to Roth IRA-like accounts.
According to those with knowledge of the plan, there would be basically two rates on individuals — down from the current seven brackets: 10 percent for those below roughly $75,000 and 25 percent for those above that level of annual income.
A 10 percent "surtax" would apply to earnings above $450,000 for joint filers. And for this purpose, the surtax would not apply to certain domestic manufacturing income, but the base would include municipal bond interest and employer-provided health insurance premiums.
Also, the standard deduction and the child tax credit would phase out on incomes above $300,000 on joint returns.
There also would be a 40 percent exclusion for capital gains and dividend income — meaning a maximum rate on those categories of 15 percent.
Camp's plan calls for repeal of the individual alternative minimum tax as well.
On the corporate side, the reduction from 35 percent to 25 percent would be phased in over five years by 2 percent a year.
The draft bill would also eliminate the Modified Accelerated Cost Recovery System (MACRS is the current tax depreciation system in the United States) and lengthen certain lives for new assets.
The bill would require amortization rather than expensing of certain research and experimentation expenses, and advertising expenses. For instance, advertising is now treated as an ordinary, fully deductible business expense in the year it is incurred. Camp's plan calls for allowing businesses to deduct only 50 percent, and requires that the balance be amortized over some number of years.
Democrats on Tuesday had not seen the full plan, but have already been questioning how Camp would pay for all of the changes. Some revenue-raisers are included. It would require big U.S. banks and insurance companies to pay a quarterly 3.5 basis-point tax on assets over $500 billion — raising $86.4 billion over the next decade.
But Democrats have characterized another move — the expansion of the Roth IRA — as a "gimmick" that they say could raise a lot of money now but cost a lot of money in the future.
"We're going to be requesting a 20- to 30-year Congressional Budget Office score," one senior Democratic aide said late last week.
And even before Camp has unveiled his tax package — scheduled to occur at a Capitol news conference at 1:30 p.m. Wednesday — Republican and Democratic leaders in the Senate are shooting down the possibility of getting significant legislation through this year.
Both Majority Leader Harry Reid and Minority Leader Mitch McConnell blamed one another Tuesday for holding the legislation up. "The truth is we should have tackled tax reform years ago," Reid said. "It would be extremely difficult with the obstruction we get here from the Republicans on virtually everything."