What Does Camp’s Tax Reform Proposal Mean?– March 01, 2014

A simplified tax code, lower personal and corporate income tax rates condensed into fewer brackets, the elimination of preferred rates on capital gain and qualified dividends, fewer tax breaks — the list of sweeping changes in Representative Dave Camp’s 979-page plan for tax reform is long.

Camp, chairman of the Ways and Means Committee, is creating quite a buzz with his proposal, even though many believe it isn’t close to a passable piece of legislation. Cohen & Company Founder Ron Cohen comments that “both sides of the political aisle are going to oppose many of the provisions for their own partisan reasons.” He also reminds us of “The Norquist Pledge,” a document that a majority of Republican (and even a few Democrats) members of the House and Senate have signed to never vote for a piece of legislation that raises taxes in any way. Since the legislation currently on the table stands to increase taxes for some individuals, this serves as another example of the hurdles Congress will need to pass to enact real change.

However, the proposal seems to be accomplishing one important thing: it’s opening the door to serious discussion, with tangible details to debate. That’s the real impact of this proposal. It highlights just how far we have to go by starting a real conversation from which we can begin to see both the negatives and positives of various tax strategies. For example, the proposal addresses how FICA/self-employment tax can be applied differently. “The proposed sweeping changes to this area combined with lower tax rates could change the landscape for companies,” according to Tax Partner Mike Kolk, “adding incentives to add a C corporation into a business’s tax strategy or to bring more nonparticipating family members into company ownership where the tests for a reasonable wage for participating members is based on facts and circumstances and not an arbitrary 70/30 split.”

The particular details of this bill aside, some feel it is hard to imagine a serious debate on tax reform at all based on the recent dysfunction of Congress in general. As Tax Partner Tracy Monroe points out, “I am not sure if Congress can pass any piece of legislation right now.”

One thing is for sure: we are in for a long road ahead and many more discussions to come. Stay tuned…

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