December 8th, 2015 // 7:51 am @ Oliver DeMille
Need to Know
This is going to be a bit wonky. Comparing tax plans of various candidates isn’t something most people do just for fun. But it’s important because a candidate’s tax plan says a lot about how the person is picturing himself/herself in the White House, and how he/she approaches fiscal and economic issues.
This is vital knowledge for voters. Next to how the next president will deal with national security, knowing how he’ll approach finances is the most important thing voters can know.
The top proposals can be separated into three main categories: Little Changes, Big Changes, and Major Changes.
Bush promotes at least two very good ideas in his tax plan:
- Repeal Obamacare and replace it with an expanded Health Insurance Account and insurance market where policy rates stop skyrocketing, and policies are portable across state lines (further decreasing rates over time).
- Provide tax credits to people without employer-provided insurance coverage.
Bush’s plan cuts taxes from the current top rate of 39.6% down to a top rate of 28%, and a corporate rate of 20%. This is a little change, an improvement. But consider the other plans below.
Rubio released a plan that is similar to the Bush plan in many ways, including repealing and replacing Obamacare (like nearly all the other plans), with the top tax rate cut from 39.6% down to 35%, and the corporate rate down to 25%. Rubio promotes a number of cuts to government programs and closed tax loopholes, with an overall cut of around $11.6 trillion of taxes over time.
Rubio’s rates are higher than Bush’s, but he actually makes a bigger total cut to taxes because he provides fewer loopholes. Rubio’s plan gives a huge boost to low income families, as does Cruz, and also Trump (Trump proposes a zero tax rate for couples making up to $50,000.)
Paul, as you might expect, proposes a 14.5% flat tax for everyone. The idea is to expand the tax base, while lowering all rates in ways that will stimulate business, jobs, and more capital flowing into the United States. This model also stimulates increased freedom and entrepreneurship by simplifying the tax code and collections process. Paul also wants to significantly reduce the size and cost of government.
Carson provides another alternative for significant change, promoting a 15% flat tax (he wanted 10%, but decided that 15% was needed). This is similar to Paul’s proposed tax rate, but it is unclear what Carson would cut in order to balance the budget. Carson doesn’t want to outline a full plan right now, preferring to wait until elected and negotiate the costs of government down in real time. This leaves his specifics a bit hazy, but his principles on taxation are clear: lower taxes, and reduce the size of government.
Cruz proposes a 10% flat tax for individuals income, and a 16% tax business flat rate, which will most likely be a VAT (value-added tax), meaning that businesses will pass it on. This will drastically improve business investment, jobs, and economic stimulus in the U.S. economy—but it also increases consumer prices across the board. Of course, like the other plans, Cruz includes repealing Obamacare, cutting certain loopholes, and aggressively scaling back the size of the U.S. government. The Cruz plan has been criticized because it gives a major tax break to upper income families, but it is second only to Rubio’s plan in giving tax relief to the bottom 10% of households.
Trump released a plan that includes:
- A simplification of the tax code (from seven tax rates to three, and all of them at lower rates). Compared to the flat tax, this plan ensures that high income businesses and people will pay at higher rates than the working class—but pay less than they would in other advanced nations (and less than they were under President Obama). This incentivizes major money flow to the U.S. economy, businesses, and jobs.
- A significant reduction of taxes for most Americans. For example, Trump’s plan provides a zero tax rate for a person making up to $25,000 a year (or $50,000 per year for a couple). It brings the highest earner rate of 39.6% down to 25% for a person earning over $150,000 ($300,000 for a married couple), and brings similar cut for households earning between $50,000 and $300,000 a year. This is an immediate raise and economic boost for most American workers, families, and businesses.
- An elimination of the estate tax and the marriage penalty, providing a huge financial benefit to families and small businesses.
- A reduction of corporate tax rates (from 35% down to 15%) to below those of China and other major economic competitors. This is long overdue, and like the Paul, Carson, or Cruz plans, would bring a lot of businesses (and jobs) to the U.S., and boost the American economy.
- A one-time, low-rate repatriation plan that encourages companies to bring their trillions of dollars held in foreign banks back to the U.S. economy (and keep these funds here long term). Again, this will spur a major jobs and investment increase in our economy.
- Overall tax cuts of close to $12 trillion over time. (By comparison, the Bush and Cruz plans each cut approximately $3.7 trillion over time.)
- Trump’s plan gives by far the biggest tax relief to the middle class (while Rubio helps the bottom 10% the most, and Cruz’s plan is best for the very top earners).
Fiorina takes an even stronger approach to changing tax policy than Trump, Cruz, Carson, or Paul. She proposes a 3-page tax plan, and an overhaul of the way the government budgets, not just what rates of taxes are applied. Under her plan, every government agency and program would start at a budget of $0, and would be required to make the case for how good their programs are, how well they work, and how much money they need to keep flourishing—or improve.
Based on an outline of all such government programs, the administration would decide to keep or cut any agency or other government program, and to fund it only to the extent that it is worth the cost—when compared with all other government operations and the real needs of the nation.
Once such a budget is outlined, the tax needs and rates would be determined. This would very quickly balance the budget, Fiorina proposes, and immediately cut or downsize government programs that aren’t needed or simply aren’t working.
Whatever candidate(s) you like, or don’t like, this quick overview can help us get a sense for what kind of fiscal leader the candidate might be.
Note that all of them, even the Bush plan, are significantly better than the Clinton or Sanders plans (which raise taxes and add numerous government programs). At least the leading Republican candidates seek tax reductions and the downsizing of Washington–some more than others.
Regardless of who replaces Barack Obama in the White House, some of the key points in the Trump, Cruz, and Fiorina tax plans are downright excellent. The United States needs them, and the sooner, the better. Ideas from the Bush, Rubio, Paul, and Carson plans also have merit. Some of the plans from other candidates have important policy ideas as well (research, for example, the balanced budget plan by John Kasich).
Whoever we elect in 2016 should promote the best parts of these plans and help rekindle our struggling economy.
But this brings us to a significant roadblock. No matter what tax and budget plan the next president wants to follow, the White House will have to get it through Congress. On the one hand, Congress is accustomed to budgeting a certain way and is often resistant to major new ways of doing things—regardless of what candidates promised during their campaign. On the other hand, the right kind of executive leadership could certainly make a difference in getting Congress to act.
Consider Fiorina’s proposal to give the president power to move money around to different agencies and programs—taking from those that aren’t working or aren’t really needed, and giving those funds to programs that are very effective and highly important. In many ways, this is an excellent idea.
But it has one major flaw: every time a new party enters the White House, the president could just shift a ton of money from, say, the military to environmental programs, etc.
This is a significant downgrade of the Constitutional format. On the other hand, if we combine Fiorina’s zero-budgeting program where each agency starts from zero and the president proposes major cuts, and then Congress does its own zero-based budgeting, it’s a real winner. We need this. But we need it in the Constitutional way (which seems to be what Fiorina is proposing, after all).
Ultimately, none of these plans are going to sail through Congress unscathed. Nor should they. The Constitution works, when we follow it. Checks and balances are a good thing. (Note that other plans beyond taxes, like Trump’s promise to deport all illegal aliens, would undoubtedly face serious blocks in the courts.)
But the candidates’ tax plans do give us some excellent ideas on how to slow and stop Washington’s overreach. The next president should study them and adopt a number of things contained in these plans—the best of each.
Correction, 12/12/15: A previous version of this article stated that Ted Cruz’s tax plan included a 16% sales tax. This language has been clarified to read: “… a 16% tax business flat rate, which will most likely be a VAT (value-added tax), meaning that businesses will pass it on.” Thanks to the couple of readers who questioned this detail so I could revise for accuracy.