Levin Warns Republican Tax ‘Blindfold’ Would Hurt Families

June 3 (Bloomberg) -- U.S. Representative Sander Levin, the top Democrat on the House Ways and Means Committee, is warning that Republican plans to lower corporate and individual tax rates would endanger tax breaks that help people pay for health care, housing and retirement.

Achieving the Republican goals of reducing the 35 percent top tax rates on individual and corporate income to 25 percent would lead to tax increases for middle-income families who depend on the mortgage interest deduction and incentives for higher education, he said today in Washington at the Center for American Progress, a group that often supports Democratic policies.

“We should make clear as a basic principle that we’re not going to unfairly increase the tax burden of working families,” he said. “Tax reform must not make our tax system less progressive.”

Levin, as the top tax writer for the minority party in the House, will have little power to advance a tax bill that will be written by Ways and Means Chairman Dave Camp, a Michigan Republican. Democrats will have a say in the outcome because they control the Senate and the White House.

President Barack Obama has called for an overhaul of the corporate tax code that would lower rates, broaden the tax base and raise the same amount of revenue as the current corporate tax system. Obama also wants to allow tax cuts to expire next year for income above $200,000 for individuals and $250,000 for married couples.

Raising Revenue

In an April speech, Obama said he wanted to raise an additional $1 trillion over the next 12 years by reducing targeted tax provisions. That revenue would come only from taxpayers with the highest incomes.

The fiscal commission that Obama appointed last year called for eliminating many tax breaks to reduce rates. A study earlier this year by the Tax Policy Center found that more than three-quarters of the benefits of itemized deductions go to people in the top 20 percent of the income distribution.

Exclusions, such as the tax break for employer-sponsored health care contributions, are somewhat less skewed toward high-income earners, the study found. The preferential rates for capital gains are more skewed, with the top 20 percent of earners receiving more than 90 percent of the benefits.

Government Revenue

Levin, 79, who was Ways and Means chairman before Republicans took control of the House in the 2010 midterm election, is endorsing the idea of lowering the corporate rate in a way that doesn’t cost the government revenue. He noted that the largest corporate tax expenditures -- for manufacturing, equipment investment and research -- all support domestic jobs.

“We need to really understand the effect of these provisions, what we would be getting if we eliminate them and the implications of a reformed system for job creation,” he said.

A survey conducted last month found that 57 percent of adult respondents would support a corporate tax change that would lower the rate to 25 percent while “closing all of the loopholes and exemptions that benefit companies.” Just 28 percent oppose such a change, and support for a rate cut decreased when the elimination of tax breaks wasn’t mentioned.

Asked to choose between lowering rates to help U.S. companies compete “in the global marketplace and create jobs here in the U.S.” and making sure that corporations “pay their fair share of taxes,” 34 percent chose the first option and 56 percent chose the latter.

Glover Park Survey

The survey of 1,001 adults was conducted by the Glover Park Group, a Washington-based government and public relations firm whose clients have included Pfizer Inc., Visa Inc., and the United Federation of Teachers, and whose partners include several officials from Bill Clinton’s administration.

Camp and fellow Republican Representative Paul Ryan of Wisconsin, chairman of the House Budget Committee, have called for a 25 percent rate without saying what tax breaks should be eliminated or curtailed. They want to extend all of the expiring income tax cuts and use that revenue level as the standard that a tax overhaul should hit.

An April analysis by the Tax Policy Center, a nonpartisan policy research organization in Washington, found that hitting those targets would require eliminating more than $2.9 trillion in tax breaks over the next decade.

Raising Taxes

Camp’s spokesman, Sage Eastman, said in an e-mailed statement that Camp thinks Levin’s “assertion that lowering the rates would be a tax cut or increase on anyone is simply not true.” He said Levin “clearly wants to raise taxes, especially on small businesses and investors, but that is not” Camp’s plan.

The Ways and Means Committee has been holding hearings about various aspects of the tax code. Camp hasn’t committed to a timeline for producing a bill.

So far, Levin said, those discussions haven’t yielded clarity on what would be needed to reduce rates to 25 percent.

“This is the equivalent, as I once put it, of putting a blindfold on, spinning around three times, and picking a number,” he said. “It’s time, I think, to take the blindfold fully off. It’s time to understand clearly what that would mean for working families.”

Levin said additional revenue should be part of the discussion of reducing the federal budget deficit.

“There is no way to address our problems by saying that revenues are off the table,” he said. “It just won’t work.”

To contact the reporter on this story: Richard Rubin in Washington at rrubin12@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net