Once again, according to a White House summary of his 2015 budget to be unveiled later today, President Obama will call for “closing loopholes” that he says help “Wall Street.” Once again, upon closer examination, these “loophole closures” are actually tax hikes that will hit Main Street the hardest.
There is something different this year, but that “something” is bad news for taxpayers and entrepreneurs. The difference is that House Ways and Means Committee Chairman Dave Camp (R-Mich.) has unfortunately signed onto some of these destructive proposals in the “tax reform” bill he introduced last week.
In particular, both Obama and Camp’s “carried interest” proposals would tax much of the capital gains of partnerships as ordinary income as well as subject them to hefty payroll taxes for Medicare and Social Security. Small business folks and innovative entrepreneurs who structure their firms as partnerships will be hindered by both the cost and complexity of Obama and Camp’s provisions aimed at “Wall Street” fat cats.
In his Wall Street Journal op-ed that ran last week on the day he unveiled his much awaited “tax reform” bill, Camp proclaimed that tax code “should not hinder small businesses from growing into large businesses. And the individual income tax needs to be simpler, fairer and flatter for everyone.”
Camp’s bill does make some needed and long overdue changes to the tax code. He gets rid of the deduction for state and local taxes, which has for decades favored high-taxing “blue” states. It trims the mortgage-interest deduction, a regressive deduction that encourages McMansions and was a big factor in the housing bubble.
It also gets rid of Obamacare’s “medicine cabinet tax,” which severely restricts the purchase of over-the-counter drugs in tax-preferred health savings accounts and flexible spending accounts. As I have written here before, this stealth tax has the perverse effect of tilting consumers toward prescription drugs that would be cheaper to the insured individual but cost the health care system much more.