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Why Republicans don't actually want tax reform

Evan Soltas

Feb. 26, 2014

Welcome to Wonkbook, Wonkblog's morning policy news primer by Evan Soltas. Send comments, criticism, or ideas to Wonkbook at Washpost dot com. To read more by the Wonkblog team, click here.

Wonkbook's Number of the Day: $86.4 billion. That's how much a tax on large banks in Rep. Dave Camp's tax-reform proposal would raise over the next decade, according to projections.

Wonkbook's Graph of the Day: Is the rally in home prices about to slow?

Wonkbook's Top 5 Stories: (1) tax reform dies young; (2) how to beat childhood obesity; (3) trade deal delayed again; (4) when you can and can't be searched; and (5) the hopeless discharge petition.

1. Top story: Why Republicans don't actually want tax reform

Will Mitch McConnell block tax reform? ""I think we will not be able to finish the job, regretfully," McConnell told reporters after Senate Republicans regular Tuesday lunch. "I don't see how we can." McConnell blamed his pessimism on the refusal by Democrats to consider any tax reform plan that doesn't raise significant new cash for deficit reduction. President Obama has sought roughly $600 billion over the next decade, while Senate Democrats have approved a budget blueprint that calls for $1 trillion." Lori Montgomery in The Washington Post.

Wait, wasn't this a Republican priority? "Republicans think they will expand their majority in the House -- and perhaps take the Senate -- by spending the remainder of 2014 concentrating on a still struggling-economy, cutting a raft of regulations and Obamacare's woes. Many senior figures see no need to open up a new policy discussion in February of an election year without a partner in the Senate and White House. And after specific details were revealed, it seems like they may rankle Republicans even more. More than a dozen skeptical lawmakers and senior aides told POLITICO they thought it was a strategic blunder to unveil a plan outlining which loopholes to cut, whose rates will be slashed and which sector of the economy will see higher taxes when there's little expectation the code will be reformed in 2014." Jake Sherman and Lauren French in Politico.

@ddayen: Dave Camp's tax reform proposal closes carried interest loophole, taxes banks. No wonder GOP leadership is nervous! (Dems probably are too!)

Yet another obstacle: Ron Wyden. "House leadership aides told Mr. Camp in November that he needed to find a Democratic partner other than Senator Max Baucus of Montana, the chairman of the Senate Finance Committee at the time, who had been working with Mr. Camp on a tax code overhaul. But Mr. Camp failed to do so -- and now Mr. Baucus is ambassador to China. Senator Ron Wyden, Democrat of Oregon, now leads the Finance Committee." Ashley Parker in The New York Times.

The GOP's new tax-cutting plan still hits the rich. "[L]obbyists, independent analysts and other close observers of tax policy are already quibbling. For one thing, Camp would impose a 10 percent surtax on certain types of earned income over $411,000 for individuals and $464,000 for families, essentially creating a new 35 percent bracket -- at least for that 0.9 percent of filers. Moreover, sources familiar with the plan say Camp (R-Mich.) would not eliminate a 3.8 percent surtax on investment income imposed on wealthy households to help pay for President Obama's Affordable Care Act. By this argument, 35 percent plus 3.8 percent equals a top rate of 38.8 percent -- awfully close to where it is under current law. But wait! What about "PEP and Pease," the current-law phaseouts that increase tax rates for the wealthy? Add those in, and the current top rate is actually closer to 44.6 percent -- making 38.8 percent look like a pretty good deal." Lori Montgomery in The Washington Post.

Biggest banks said to face asset tax, in one of the most controversial parts of the Camp plan. "The biggest U.S. banks and insurance companies would have to pay a quarterly 3.5 basis-point tax on assets exceeding $500 billion under a plan to be unveiled this week by Congress's top Republican tax writer. The tax, which would raise $86.4 billion for the U.S. government over the next decade, would likely affect JPMorgan Chase & Co. (JPM), Bank of America Corp., Citigroup Inc. (C), Wells Fargo & Co. (WFC), Goldman Sachs Group Inc. (GS) and Morgan Stanley (MS), all of which had more than $500 billion in assets as of Dec. 31, according to the Federal Reserve." Richard Rubin in Bloomberg.

@damianpaletta: Day before Camp drops tax reform plan, McConnell kneecaps it and says no prayer.

Yes, but part of the proposal does sneak in big cuts to capital gains and dividend tax rates. "According to the JCT analysis, which was reviewed by The Wall Street Journal, the tax-overhaul plan would increase real GDP by as much as 1.5% to 1.6% a year over the 2014-2023 period...The plan's provision for capital gains and dividends - while not its centerpiece - would amount to an effective tax reduction. It would start by eliminating the current top rate of 20% on long-term capital gains and dividends. Capital gains and dividends would be taxed like ordinary wage income. But 40% would be excluded from income for tax purposes, meaning that taxpayers generally would see an effective rate cut on their investment income." John D. McKinnon in The Wall Street Journal.

CAMP: How to fix our appalling tax code. "First, the tax code will be made simpler--so every family can do its own taxes confidently, without fearing an audit, or wondering if someone else who can afford an expensive accountant is getting a better deal...After months of work, the leaders of the working group recently came forward with a plan that consolidates four of these provisions into one improved credit, making it easier for families and students to afford a college education." Dave Camp in The Wall Street Journal.

NOAH: Don't weep for tax reform. "Fifteen tax brackets may be too many, but seven isn't really enough--not when the top 1% has managed to double its share of the nation's collective income over the past three decades. The 0.1% and the 0.01% are increasing their income share even faster. Income classes are proliferating among the rich, and top income brackets need to proliferate along with them to ensure that everyone is paying their proper share." Timothy Noah in MSNBC.

PETHOKOUKIS: Dave Camp's tax reform plan shows how the US is sabotaging its own economy. "It's unclear right now what the budgetary effects would be. Perhaps revenue neutral, perhaps a sizable revenue gainer when higher economic growth is factored in. The reports I saw today didn't indicate what the new, lower corporate would be. But my reading of the research gives me some confidence that a big rate cut, even without base broadening, would hardly some big money loser for Washington. In any event, lowering the combined corporate-investment tax rate is solidly pro growth." James Pethokoukis in AEI.

VINIK: Camp's tax reform is ambitious but hopeless. "It taxes investment income as ordinary income. One long-sought liberal goal is to tax investment income as ordinary income. Currently, the capital gains tax rate is 20 percent, although taxes on some investments may be a few percentage points higher. While Camp's plan would accomplish that liberal goal, it also allows filers to exclude 40 percent of their investment income for tax purposes. Since the top tax rate is 25 percent (rising to a maximum of 35 percent--see below), investment income would only be taxed slightly higher under Camp's plan than under the current system--but now 40 percent will be excluded." Danny Vinik in The New Republic.

Music recommendations interlude: Pete Yorn and Scarlett Johansson, "Relator."

Top opinion

ORSZAG: A better fix for medical malpractice. "[T]he evidence suggests the right way forward is not to impose arbitrary caps on liability. Instead, we should change the basis for finding a doctor guilty of malpractice in the first place...[D]octors should have a safe harbor from malpractice suits if they follow evidence-based protocols published by a professional medical association...Frakes and Jena find that only moving away from a local customary-practice standard has a significant effect on health quality. More specifically, states that had already shifted away from local customary practices and toward national practices (which are more likely than local practices to reflect the latest medical knowledge) experienced substantial reductions in mortality rates, avoidable hospitalizations and adverse events, relative to other states." Peter R. Orszag in Bloomberg.

GALSTON: Give representatives four years. "In today's circumstances, four-year House terms would also increase the chances of effective governance. If the winning presidential candidate and House majority are of the same party, the president would have a better chance of enacting promised legislation, giving the people a chance to judge its consequences. If the electorate instead divides the partisan control of the Oval Office and the House, both the president and the leaders of the House majority would be on notice that neither could outlast the other, forcing them to choose between compromise and a full term of gridlock." William A. Galston in The Wall Street Journal.

PONNURU: The Fed's three biggest mistakes in 2008. "Pay more attention to forward-looking indicators than to backward-looking ones...Be aware that the Consumer Price Index can be badly skewed by a mismeasurement of housing prices...Understand how important it is to shape market expectations. The Fed reduced interest rates in December 2007, but not as much as markets had expected. Stocks fell. In an important sense, the market's interpretation of a policy is, in fact, the policy." Ramesh Ponnuru in Bloomberg.

Wonkbook is not as brave as this fourth grader interlude: And he is willing to admit it. I would not do that ski jump.

2. How to beat childhood obesity

U.S. childhood obesity rates fall 40 percent in a decade. "The prevalence of obesity among children ages 2 to 5 declined to 8.4% in the years 2011-2012 from 13.9% in 2003-2004, according to the Centers for Disease Control and Prevention. The rate also dropped among children ages 6 to 11, though less significantly, to 17.7% from 18.8% over the same period. While the precise reasons for the decline among 2- to 5-year-olds aren't known, many child-care centers are offering more healthful food and more exercise, the CDC said in a statement. The CDC also cited a decline in the consumption of sugar-sweetened beverages by young people and said an increase in breast-feeding rates also might play a role." Betsy McKay in The Wall Street Journal.

First Lady announces after-school initiative. "Michelle Obama on Tuesday introduced a broad, five-year initiative to make after-school programs a healthier, more active environment for millions of children, saying the changes would also help the children's performance during the other hours of the day. In a statement released Tuesday afternoon, the first lady announced a commitment by the Boys and Girls Clubs of America and the National Recreation and Park Association to provide children with healthy snacks including fruits and vegetables and opportunities for at least 30 minutes of physical activity." Emmarie Huetteman in The New York Times.

New regs would outlaw junk food ads in schools. "The Obama administration proposed Tuesday to ban advertisements for unhealthy food in the country's schools, targeting a $150 million per year industry that is nonetheless backing the plan. Draft regulations unveiled Tuesday by the U.S. Department of Agriculture reflect the latest phase of first lady Michelle Obama's campaign to combat a national childhood obesity crisis. The rule proposed Tuesday would prohibit ads at schools on everything from vending machines to scoreboards for any food that can't be sold on campuses. The action follows the development of new school nutritional standards that are set to take effect in July." Ben Goad and Justin Sink in The Hill.

HHS official found White House 'disarray' months before health law rollout. "A senior Health and Human Services official was so frustrated last May over the White House's "disarray" on health care before the launch of Obamacare insurance exchanges that he warned of needing a "come to Jesus meeting" with his counterparts. The comment from Anton Gunn, then-HHS director of external affairs, came in an email exchange with Anne Filipic, the president of the outside group Enroll America, a nonprofit with close ties to the White House that was formed to promote the fall Obamacare rollout and boost enrollment -- an effort the two were working on closely." Susan Crabtree in The Washington Examiner.

4 million sign up for Obamacare. "Approximately 4 million people have purchased insurance through the ObamaCare exchanges, President Obama told volunteers at an Organizing for Action summit in Washington on Tuesday. "We now have more than 4 million Americans who have signed up for quality, affordably health insurance," Obama said. "Four million. That's on top of the 3 million young people who have been able to get covered staying on their parents plan... you've already made sure people all across America are getting better coverage." The announcement, which came with just five weeks left in the early enrollment period, means some 700,000 have enrolled in ObamaCare so far in February." Justin Sink in The Hill.

Republican Obamacare-fix bill backfires. "A Republican-led bill designed to "save American workers" would cause 1 million workers to lose their health care coverage and increase the deficit by $74 billion, according to Congress' official scorekeeper. The legislation, offered by Rep. Todd Young (R-IN) and 208 co-sponsors as a tweak to Obamacare, would change the definition of a full-time work week under the health care law from 30 hours per week to 40 hours. The aim was to mitigate the effect of the law's employer mandate, which says businesses with 50 or more workers must offer insurance to full-time employees. An analysis of the bill, released Tuesday by the nonpartisan Congressional Budget Office and Joint Committee on Taxation, found that it would cause 1 million people to lose their employer-based insurance coverage." Sahil Kapur in Talking Points Memo.

Study questions benefits of 'medical home' programs for the chronically ill. "[A] study of one of the earliest and largest medical-home pilots found that after three years, patients' health improved in only 1 of 11 measures. There was no change in hospital or emergency-room use, and no significant cost savings...The medical-home model, introduced by the American Academy of Pediatrics in 1967 but expanded and refined over time, aims to put primary-care providers more firmly in charge of patient care, with more active monitoring and outreach than physicians usually provide. PCMH practices typically have registries of patients with chronic conditions, and data systems that can flag when they are overdue for checkups and screenings, and identify those at high risk for hospitalizations. Primary-care providers ideally coordinate patients' use of specialists and other medical services." Melinda Beck in The Washington Post.

Aww interlude: Animals getting older.

3. Another delay for the TPP deal

Trans-Pacific Partnership talks end without a deal. "Negotiators from the U.S. and 11 other nations in the Asian-Pacific region failed to ink a free-trade pact but claimed to be moving toward a deal. The negotiators wrapped up a meeting in Singapore on Tuesday to work out details of the Trans-Pacific Partnership free-trade agreement. The talks, which the U.S. views as a way of extending its economic clout in Asia, were supposed to conclude last year. But a number of sticking points, especially between the U.S. and Japan about agriculture and autos, meant that deadline was unachievable. Officials claimed to have made significant progress in the talks that began at the weekend, but didn't set a deadline for reaching an agreement." Gaurav Raghuvanshi in The Wall Street Journal.

Explainer: Why Obama loves trade and Democrats hate it. Zachary A. Goldfarb in The Washington Post.

3 Fed nominees get March 4 hearing. "The panel will meet at 10 a.m. Tuesday to hear from Mr. Fischer and two nominees for seats on the Fed's board of governors, Lael Brainard and Jerome Powell, the committee said." Ben Leubsdorf in The Wall Street Journal.

Lanyards and polo shirts: Life after the Federal Reserve for one Benjamin S. Bernanke. "Bernanke has been spotted wearing polo shirts and the quintessential Washington accessory: a lanyard with an ID card identifying him as an employee of the Brookings Institution...He is lined up to give the keynote address March 7 at a conference in Houston on "Energy and the New Global Competition," organized by consulting firm IHS Energy. He will be critiquing a paper at Brookings next month by two young economists on the progress of Japan's recovery. And he is working on a memoir about his eight years in office, a process that he estimates will take about a year to complete, according to the Associated Press." Ylan Q. Mui in The Washington Post.

2013 was a big year for home prices. "U.S. prices rose 11.3% in the fourth quarter compared with a year earlier, according to the Standard & Poor's/Case-Shiller price index. The Case-Shiller index that measures home prices in 20 major metro areas rose 13.4% during the same span. A separate index, released Tuesday by the Federal Housing Finance Agency, said prices had gone up 7.7%, also to an eight-year high. Rising home prices are proving to be a double-edged sword because, together with higher mortgage rates, they are reducing affordability, which has curbed sales." Nick Timiraos in The Wall Street Journal.

The best part of the housing price recovery may be over. "[T]he stellar performance may not last, according to the economists who released the results. The higher prices, combined with a rise in mortgage rates, have pushed some potential buyers, including investors, out of the market. That in turn has dampened demand, and the effects are starting to show in the index's month-to-month figures...Of the 20 metro areas tracked in the report, prices were down in 11 cities from November to December. Among them was Phoenix, which posted a 0.3 percent decline after 26 months of back-to-back gains." Dina ElBoghdady in The Washington Post.

A nonprofit lender revives the hopes of subprime borrowers. "[Bruce] Marks's nonprofit organization, the Neighborhood Assistance Corporation of America, has $10 billion in funding from Bank of America to make loans on its own terms over the next decade. It does not require down payments. It does not consult credit scores. Its loans all carry interest rates below 4 percent. It has enough money to mint about 50,000 homeowners, but Mr. Marks has a larger goal. He wants to show that it is possible to lend to lower-income borrowers on terms that are profitable and sustainable." Binyamin Appelbaum in The New York Times.

Consumer confidence falls in February. "The Conference Board, a private research group, said its index of consumer confidence fell to 78.1 from a revised 79.4 in January, first reported as 80.7. The February index is below the 80.0 expected by economists surveyed by Dow Jones Newswires...Consumer expectations for economic activity over the next six months, however, dropped sharply to 75.7 from a revised 80.8, originally put at 81.8." Kathleen Madigan in The Wall Street Journal.

Credit Suisse helped wealthy Americans cheat the IRS, Senate report says. "Lawmakers have accused the bank of helping wealthy Americans avoid paying taxes on as much as $12 billion in assets held at the institution. Prosecutors have been aware of the misconduct at Credit Suisse for at least four years, in which time they have indicted seven bankers and launched a probe of the institution, according to the report. But no one has stood trial, and the bank has not been held legally accountable, the report says." Danielle Douglas in The Washington Post.

U.S. orders emergency testing for crude oil rail shippers. "Federal regulators issued emergency rules Tuesday requiring extensive tests on crude oil moving by rail, concluding the system had become "an imminent hazard to public health and safety and the environment."...The order will require companies to test each batch of crude for an array of characteristics, from the temperature at which it boils to the percentage of flammable gases trapped in the oil and the vapor pressure, which is created when crude emits gases that can build up inside railcars. Previously, federal rules didn't require that crude be tested as extensively; indeed it only required that crude be properly classified and didn't spell out in any detail how often to test the crude.Russell Gold and Laura Stevens in The Wall Street Journal.

Comedians interlude: Steve Carrell and Stephen Colbert in a great bit.

4. Can we search you now?

Justices rule on home searches and defendants' assets. "In a pair of 6-to-3 decisions, the Supreme Court ruled on Tuesday that the police may sometimes search homes over the objections of one of their residents and that criminal defendants are not entitled to hearings to try to gain access to frozen assets to pay their lawyers...The question for the justices was whether the police should have obtained a warrant in light of Mr. Fernandez's objection. Justice Samuel A. Alito Jr., writing for the majority, said no. The general rule, he said, is that any occupant's consent is sufficient." Adam Liptak in The New York Times.

Justice Department informs inmate of pre-arrest surveillance. "The Justice Department has informed a former Brooklyn man who is serving a 15-year prison sentence over a terrorism-related conviction that his communications were subjected to surveillance without warrants before his arrest. It was the third time the department has provided such notice since changing a practice last summer that had concealed the presence of evidence derived from warrantless wiretapping from defendants. It was also the first time that the notice involved a completed case." Charlie Savage in The New York Times.

Culture clash roils Arizona. "The Arizona bill reached Ms. Brewer's desk Monday. A number of fellow Republicans, including U.S. Sen. John McCain of Arizona and former presidential candidate Mitt Romney --as well as three state senators who had voted for the bill--urged Ms. Brewer to veto it. An array of business groups and leaders, including the state's Chamber of Commerce, also spoke out against the bill, fearing the impact it could have on tourism and commerce. Marriott International Inc. and American Airlines Group Inc. have criticized the bill as being potentially damaging to the state's economy. Apple, which has opened a component-manufacturing plant in Mesa, Ariz., is urging its veto." Tamara Audi and Jacob Gershman in The Wall Street Journal.

Foreign affairs interlude: Rubio on Venezuela, a good speech.

5. Discharging legislation, or responsibility?

Policy one for the discharge petition: A minimum wage hike. "House Democrats will formally launch a discharge petition Wednesday on raising the federal minimum wage - adding a new pressure tactic against Republicans in their arsenal on a hot-button election-year issue...A discharge petition is a procedural maneuver that allows the minority party to force a vote on the House floor...It's extraordinarily difficult to get a successful discharge petition. For a member of the majority party to buck House leadership and sign on to a discharge petition led by the minority party would be considered party heresy." Seung Min Kim in Politico.

Reid doesn't have the votes in the Senate for raising the minimum wage, either. "Senate Majority Leader Harry Reid on Tuesday delayed action on legislation raising the minimum wage, the centerpiece of the Democrats' 2014 agenda. The Nevada Democrat made the surprising move amid escalating Democratic resistance in the wake of a Congressional Budget Office report released last week estimating that hiking the minimum wage to $10.10 an hour could cost the equivalent of 500,000 jobs by late 2016. Reid has not yet unified his caucus on the issue, which is a constant in the Democrats' election-year playbook. Of the 55 senators who caucus with the Democrats, only 32 have signed on as official co-sponsors of Sen. Tom Harkin's (D-Iowa) bill." Alexander Bolton in The Hill.

Policy two: Immigration reform. "Hill Democrats and immigration reform advocates are almost certain they'll have to resort to a rare procedural move to try to force a vote on an overhaul this year. The tricky part is deciding when to pull the trigger. Though aides say no decision has been made, House Democratic leaders are strategizing on when to deploy what's known as a discharge petition, which would have to garner a majority of lawmakers' signatures to force immigration legislation onto the House floor for a vote." Seung Min Kim in Politico.

When you fail, try, try again. "The Senate is readying another go at restoring long-term unemployment benefits that expired nearly two months ago. Negotiating lawmakers have now largely abandoned pursuit of a short-term extension...Senate Majority Leader Harry Reid and his leadership team are pitching a bill that would revive benefits for six months or so retroactive to December, using the new farm law's billions in savings to pay for a half-year extension's price tag of roughly $12 billion to $13 billion." Burgess Everett in Politico.

Quiz interlude: Which classic author is your soulmate?

Wonkblog Roundup

What the NBA can teach us about eliminating racial bias. Christopher Ingraham.

Has the Venezuelan government helped or hurt the country's poor? Max Ehrenfreund.

States give the most subsidies to an industry with a plummeting payroll. Lydia DePillis.

McConnell: Tax reform is dead. Lori Montgomery.

Lanyards and polo shirts: Life after the Federal Reserve. Ylan Q. Mui.

The GOP's new tax-cutting plan still hits the rich. Lori Montgomery.

The best part of the housing price recovery may be over. Dina ElBoghdady.

Tesla's stock is up 644%. Why it may not last. Steven Mufson.

Why Obama loves trade and Democrats hate it. Zachary A. Goldfarb.

Et Cetera