Republicans Reveal Tax Reform Plan

A new tax reform plan unveiled by Republican leadership calls for lower taxes for all with a simplified tax code, but with less tax breaks for individuals and businesses. The proposal was presented by Congressman Dave Camp from Michigan, the outgoing chair of the House Ways and Means Committee.

Those are a few of the highlights of a new tax reform proposal put out Wednesday by Michigan Republican Dave Camp, the outgoing chairman of the House Ways and Means Committee.

The proposal is unlikely to gain traction this year with mid-year elections at stake, but it will serve as the first Republican proposal for tax reform whenever lawmakers do get around to it, which may not happen until 2017, political observers say.

Here are some of the key features of Camp's plan from an initial reading of it:

Lower rates: Currently there are seven individual income tax rates ranging from 10% to 39.6%. Camp would reduce them to three: 10%, 25% and 35%. The last bracket would essentially apply to the income that today is subject to the 39.6% bracket -- income over $400,000 for singles and $450,000 for married couples filing jointly.

But many tax breaks, such as the one workers get for employer contributions to their health coverage, would only be allowed against income up to the 25% bracket. So their total value would be reduced or even eliminated for very high-income filers.

Higher standard deduction: The proposal would raise the standard deduction to $11,000 for individuals and $22,000 for couples. The net result would be fewer taxpayers who itemize their deductions, thereby simplifying the tax filing experience and encouraging the majority of filers to use the Form 1040A.

Increased child tax credit: The per-child tax credit would be increased to $1,500 from $1,000 and would be allowed for kids up to the age of 18, versus 17 today. But again the credit would phase out for very high income filers.

Reduced mortgage interest deduction: The mortgage interest deduction currently is allowed on mortgages up to $1 million. Under Camp's proposal the cap would be lowered to $500,000.

No more state and local income tax deduction: Taxpayers are allowed under today's tax code to deduct their state and local income taxes on their federal return. That would no longer be allowed under the new proposal.

New bank tax: "Too big to fail" financial institutions would pay a quarterly tax of 0.035% on assets in excess of $500 billion, raising more than $86 billion over 10 years.

New tax rate on investment managers: Managers of private equity, including venture capital, funds are often paid "carried interest" as part of their total pay. Carried interest represents a share of profits from investment funds.

But the managers currently only have to pay the capital gains tax rate on it, which is lower than the ordinary income tax rate.

Under Camp's plan, at least some types of carried interest would be taxed as wage income.

"I think we do need to reform the law with regard to carried interest ... particularly when the activity is more like wage income," Camp said Wednesday.