It’s a measure of just how many powerful constituencies House Ways and Means Committee Chairman Rep. Dave Camp angered with his proposal to reform the outdated tax code that weeks after its release, members of his own party are still bad-mouthing it.
The Camp plan is a huge and comprehensive rewrite of U.S. tax law that slashes dozens of specialized tax breaks, exemptions, and other goodies larded onto the code since its last major overhaul in 1986.
The proposal was the result of years of work by Camp and his staff, but it landed with a thud when he announced in in late February, as top Republicans, including House Speaker John Boehner (R-OH) and Senate Minority Leader Mitch McConnell (R-KY) appeared to distance themselves from it.
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Now, The Wall Street Journal reports a group of more than 50 House Republicans have come together to sign a letter chastising Camp for one element of the proposal: an excise tax on financial institutions with over $500 million in assets.
Spearheaded by Rep. Patrick McHenry, the chairman of the House Financial Services Committee’s Oversight and Investigations panel, the letter criticized the proposal as a move that would dry up the availability of credit and possibly drive businesses overseas.
“The proposed excise tax on financial institutions threatens our economic vitality by reducing access to credit, curbing economic growth, and worsening our nation’s unacceptably high unemployment rate,” the letter says.
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While the tax would be substantial for some of the large banks, adding up to $1 billion to their tax liability, the idea that it would significantly reduce credit availability isn’t an obvious conclusion. The tax isn’t a surcharge on the interest income or fees associated with underwriting and making loans; it is based on the bank’s net asset size. So, it wouldn’t necessarily create a disincentive to lending over other uses of funds. Though arguably, if the banks were determined to retain their existing profit margins, it could raise the cost of borrowing.
Why dozens of Republican lawmakers decided to challenge one of their own over a proposal that has virtually no chance of becoming law is a bit puzzling. One possible explanation is that there was loud objection from the financial services industry when Camp proposed the excise tax, and McHenry, like many of his colleagues on the Financial Services Committee, gets the largest share of his campaign contributions from the world of banking and finance.
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