House Ways and Means Chairman Dave Camp, R-Mich., on WednesdayFeb. 26 unveiled a draft proposal for comprehensive tax reform that calls for eliminating private equity firms’ carried interest tax rate and trims tax advantages of retirement savings for higher-income workers.
Mr. Camp’s proposal is aimed at simplifying and lowering individual and corporate income tax rates, but it comes with new surcharges on wealthy individuals and corporations.
Mr. Camp’s idea to eliminate carried interest and have private equity and venture capital firms pay regular tax rates would mean a 40% tax increase, said Steve Judge, president and CEO of the Private Equity Growth Capital Council. “Chairman Camp’s proposal penalizes long-term capital investment,” Mr. Judge said in a statement.
Mr. Camp would also like to shift more high-income retirement savers into Roth IRAs, which produce more tax revenue upfront. His proposal calls for a 10% tax on all DC contributions made by people in the 35% bracket and another tax later when participants take distributions from their DC plans.
“We understand that retirement tax incentives are a tempting target,” said Scott Macey, president and CEO of the ERISA Industry Committee, but they “are not what we would consider ‘closing tax loopholes.’”
Mr. Macey said the idea of forcing all plan sponsors to offer Roth-type arrangements would add compliance burdens that could decrease retirement savings.
The prospects for congressional action on the sweeping tax overhaul are not high. “Key policymakers from both parties have already made clear that the discussion around this draft proposal will be brief,” Mr. Judge said.