Chairman Camp’s Tax Code Rewrite Threatens Working Family Tax Credits

By Lauren Pescatore

A controversial tax plan introduced Wednesday by House Ways and Means Committee Chairman Dave Camp aims to simplify the nation’s tax code in part by scaling back and restructuring a number of tax credits and deductions that millions of low-income working families rely on.

The proposal would reduce the number of tax brackets from seven to three and lower tax rates for individuals significantly, bringing the top individual rate down from 39.6 percent to 35 percent. Middle-income taxpayers would pay a 25 percent rate and lower-income workers would pay a 10 percent rate.  It would also increase the standard deduction, but eliminate the personal exemption, two provisions that particularly benefit people at the lower end of the income scale. However, the Child Tax Credit would be restructured and the Earned Income Tax Credit (EITC) scaled back by a substantial amount. A number of other credits and deductions would also be restructured or eliminated.

Chairman Camp’s plan is high-risk. While some analyses suggest it would benefit middle-class families, the impact on low-income working families could be harsh.

The Center on Budget points out that while some low-income families could actually receive an increased Child Tax Credit under the plan’s redesign, the proposed cuts to the EITC are so devastating that the changes to both credits combined would leave many struggling low-income families worse off than before. In addition, new filing rules requiring a Social Security number to claim the Child Tax Credit would no longer allow the credit to benefit the children of undocumented workers, even though most of those children are citizens.

Both Democratic and Republican leaders have already begun to distance themselves from the proposal. Speaker John Boehner declined to endorse the plan even before its release Wednesday and Senate Majority Leader Harry Reid said the proposal has little chance of advancing.  Senate Minority Leader Mitch McConnell echoed Sen. Reid’s prediction, citing the strong discord between party lines– particularly around the issue of tax reform – as a major roadblock to the plan moving forward in 2014.

Since Rep. Camp’s term as chairman of Ways and Means is coming to an end under the House leadership term limits, it is unclear whether this proposal will have a long shelf life. Rep. Paul Ryan, who has already indicated that he would like to replace Rep. Camp as chairman of the committee, appears to be watching reactions to this trial balloon and shows interest in continuing the discussion of tax reform after this year’s elections. Reactions to Chairman Camp’s proposal may guide Rep. Ryan in his steps next year.