Last week Camp abandoned plans for a deep cut in the top marginal tax rate. | John Shinkle/POLITICO Why the GOP gave up its tax pledge

House Ways and Means Committee Chairman Dave Camp could not make the numbers work.

Republicans had vowed for more than three years to slash the top individual income tax rate to 25 percent as part of a Tax Code overhaul.


But Camp also made a less-noticed pledge: that any overhaul would parcel out the fruit of reform roughly equally among those at different income levels — the poor, the rich, the in-between would all benefit about the same.

One promise had to give, and last week Camp abandoned plans for a deep cut in the top marginal tax rate. He settled for 35 percent, which is just 4 percentage points lower than the current one.

“It was a distribution issue,” Camp said. Getting all the way down to 25 percent “would have reduced taxes for the top 1 percent” and “I said we would be distributionally neutral.”

It’s an embarrassing admission by his party, one Democrats are seizing upon, that also points to a more fundamental obstacle to revamping the nation’s multi-thousand page Tax Code.

That is: For many Republicans, the main reason to bother wading into tax reform, and all the controversy it would bring, is the promise of significantly lower tax rates — it’s the sugar that makes the overhaul medicine go down.

A big rate cut is what powered the last major tax overhaul, in 1986, which delivered tax cuts to every income group while slicing the top rate to 28 percent from a whopping 50 percent.

Republicans have promised to top Ronald Reagan’s overhaul since they took over the House in 2011, by cutting the top individual and corporate rates even lower, to 25 percent. For three years running, it’s been a centerpiece of their annual budgets.

They’ve simultaneously pledged to avoid changing who bears the relative burden of paying taxes, a move designed to prevent complaints from Democrats that their reform plans coddle the rich. That requires policymakers to offset the gains the rich would see through lower rates by taking away the tax breaks that disproportionately benefit them.

Camp’s plan suggests it may be impossible to do both.

“This is certainly going to give members pause,” said Dean Zerbe, a former Republican tax aide who is now a tax lobbyist.

Lawmakers may look at the proposal and think: “I’m having the world coming down on me” and “all this just to get the rate down 4 points?”

“For some, it may start the conversation and, for others, it may end the conversation,” Zerbe said.

At issue is a 979-page proposal released last Wednesday that would drop the top individual tax rate to 35 percent from 39.6 percent, while also cutting the corporate rate to 25 percent from 35 percent.

To finance those reductions, he takes a chainsaw to individual and corporate tax breaks that litter the code — the word “repeal” appears in Camp’s draft 404 times. He estimates his plan would reduce the total size of the code by one-quarter.

It’s already generating Camp legions of foes, from private equity firms to immigration advocates to charities to the NFL.

Of course, there are plenty of other, albeit less sexy reasons to tackle reform besides cutting rates. Among them: eliminating outdated provisions, making the code fairer and more transparent and boosting economic growth — all of which Camp is also emphasizing.

But it’s his tax rates that are likely to generate the bulk of his colleagues’ attention — and his top tax rate, which begins at income above $400,000, is even more onerous than it appears, experts said.

That’s because his plan would apply it to things that are currently tax free, like employer-provided health care benefits and municipal bond interest. He would take away their standard deduction and cut the value of their itemized deductions. His plan would hit their Social Security benefits, contributions to 401(k) retirement accounts, and money squirreled away in their health savings accounts.

It’s so stringent that it looks a lot like Democrats’ proposed rule named for billionaire Warren Buffett that would impose a minimum tax on the rich. President Barack Obama has pitched a 30 percent minimum.

“You want to talk about a real effort to make sure folks are paying their share?” Zerbe said. “In some ways, it’s more aggressive than the ‘Buffett rule.’”

The result would be those earning more than $1 million annually would see their taxes decline by 0.5 percent, even with the cut in the top tax rate, according to the Joint Committee on Taxation. Those earning between $500,000 to $1 million would pay about 2.4 percent more. Income groups between $100,000 and $500,000 would see their taxes basically unchanged under Camp’s plan, according to JCT.

Republicans may be surprised to find that some of the biggest winners are those further down the income ladder. Those between $10,000 and $20,000 would see their taxes halved and those between $40,000 and $50,000 would pay 11 percent less.

Camp predicts middle-class families would have an extra $1,300 in their pocket, partly as a result of the increased economic growth his plan would spur.

In a sign of Republicans’ struggles to bring down rates, they kept the vast majority of the $400 billion in tax increases that were imposed as part of Obamacare. Repealing them would have dug the revenue hole only deeper, making it even harder to finance rate reductions.

“I would love to get the rate down lower, and actually have 25 percent for everyone” but that proved a “major challenge,” said Rep. Charles Boustany (R-La.), who sits on the Ways and Means Committee. “We tried to come up with various solutions” and considered “many, many different proposals.”

Said Rep. Pat Tiberi (R-Ohio): “The numbers are the numbers.”

Rep. Kevin Brady (R-Texas), another Ways and Means member, said it’s too early to tell whether Camp’s higher-than-expected rate will sour colleagues on tackling tax reform. Republicans are still trying to “absorb just the mass” of the proposal, he said. Asked if promising 25 percent at the outset was a mistake, Brady said: “You ought to have ambitious goals and get as close to them as you can.”

Several rank-and-file Republicans declined comment, saying they were unfamiliar with the specifics of Camp’s plan.

“I haven’t read the bill yet,” said Rep. Bill Flores (R-Texas).

The biggest advocacy group for small businesses, the National Federation of Independent Business, has signaled its opposition. It complains that many small businesses pay taxes through their owners’ returns and so they would face the 35 percent rate even as corporations get the lower 25 percent rate.

Many of these so-called pass-through businesses are law firms and hedge funds, though others are dry cleaners, restaurants and the like. Camp said these companies can reorganize themselves as corporations in order to qualify for the lower rate.

Democrats are crowing, saying they had warned for years that Republicans couldn’t keep their promises.

“It really is proof of what we’ve been saying all along,” said Rep. Chris Van Hollen, the top Democrat on the House Budget Committee.