WASHINGTON — House Ways and Means Committee chairman Dave Camp's tax reform plan would slash the top income tax rate to 25% and impose a 10% surtax on certain earnings of the wealthy, including tax-exempt bond interest that is not currently taxed, according to the Wall Street Journal.
The surtax would help pay for lowering the top income tax rate to 25% from 39.6%.
Muni market participants are already sounding alarms about the proposal.
"Based on multiple news reports today regarding chairman Camp's tax reform proposal, we are concerned that a 10% surtax within the Camp plan could negatively impact municipal bonds, which are used at the state and local level to fund critical projects like schools, roads and bridges," Bond Dealers of America chief executive officer Mike Nicholas said. "Ultimately that translates to higher borrowing costs for state and local governments and capital improvement projects that are delayed, scaled back or cancelled altogether."
The American Public Power Association said in a release that, if these reports are true, the proposed surtax "would be unprecedented, would likely be unconstitutional, and would only serve to shift the costs of a federal tax cut onto the backs of state and local governments."
The group said "it will be deeply disappointed if this is the path [Camp] is taking" and that "this tax would necessarily be passed onto state and local residents and, in the case of public power utilities, to public power utility customers in the form of higher rates."
The tax reform proposal would also require U.S. banks, insurance companies and others to pay a quarterly 3.5 basis-point tax on assets exceeding $500 billion, according to Bloomberg.
Bloomberg also reported that the tax on assets would raise about $86.4 billion for the U.S. government over the next decade and would likely affect companies or holding companies — some of the biggest underwriters in the muni market — including JPMorgan Chase & Co., Bank of America Corp, Citigroup Inc., Wells Fargo & Co., Goldman Sachs Group Inc., and Morgan Stanley, all of which had more than $500 billion in assets as of Dec. 31, according to the Federal Reserve.
But even before Camp formally releases his tax reform plan tomorrow afternoon at 1:30 as scheduled, Senate Majority Leader Harry Reid, D-Nev., and Minority Leader Mitch McConnell, R-Ky., said Tuesday that they don't see Congress reforming the federal tax code this year. Speaking to reporters, Reid and McConnell said the differences between Democrats and Republicans are too great to overcome in 2014.
Reid also indicated that Sen. Ron Wyden, D-Ore., who has just taken over the Senate Finance Committee from former Sen. Max Baucus, D-Mont., now the U.S. Ambassador to China, plans to start all over again on tax reform.
