Monday, December 26, 2011
REPUBLICAN TAX PROPOSALS REPORT CARD
The TAX FOUNDATION recently issued a “Presidential Candidate Tax Plan Report Card” which rated the tax reform proposals of the various Republican candidates. Jon Huntsman came out on top with a B+.
Here, from his official website, is Huntsman’s plan for reforming the 1040 -
“Simplify the Personal Income Tax Code and Lower Rates
Gov. Huntsman supports a version of the plan crafted by the Fiscal Commission, headed by Erskine Bowles and Alan Simpson, commonly known as the ‘zero plan’. Rather than nibble around the edges of the existing tax code, he will introduce a revenue-neutral plan that eliminates all deductions and credits in favor of three drastically lower rates of 8%, 14% and 23%. Eliminating deductions and credits in favor of lower marginal rates will yield a simpler and more efficient tax code, decreasing the burden on taxpayers.
Eliminate the Alternative Minimum Tax
Under the new simplified plan, Governor Huntsman will eliminate the Alternative Minimum Tax, which is not indexed for inflation and is penalizing an increasing number of families and small businesses. This tax is especially burdensome on the majority of small business owners who file as individuals.
Eliminate the Taxes on Capital Gains and Dividends In Order to Eliminate the Double Taxation on Investment
Eliminating taxes on capital gains and dividends would lower the cost of capital and encourage investment in the American economy to create jobs. Additionally, these taxes amount to a double-taxation on most individuals who choose to invest since they first had to earn that money and pay income tax on it. Taxing these same dollars again when capital gains are realized serves to deter productive and much-needed investment in our economy.”
Huntsman wants not so much a “flat tax” as “flat income”. There would be no “tax expenditures” other than, I expect, some kind of Standard Deduction, but mutiple rates (I prefer one). And, to his credit, part of this includes the death of the dreaded Alternative Minimum Tax. He wants to eliminate the double taxation of corporate dividends by eliminating the individual tax on dividends.
How do I evaluate the various reform plans of the Republicans?
First of all – Cain’s 9-9-9 Plan is out of the picture. Cain has left the race, and no other candidate has supported his plan – so it is basically history at this point.
Several of the candidates call for the permanent extension of the “Bush” tax cuts. This is not tax reform – it is simply a continuation of the status quo. Not acceptible.
A couple candidates call for a “choice” between the current mucking fess and a simple flat tax system. This is ridiculous. While their simpler flat systems (not much difference between the two) are good ideas, the concept of choosing makes absolutely no sense, and just creates more work for tax preparers and higher costs for taxpayers. I call for a simpler flat tax system with minimal “tax expenditures”, no tax credits, and one tax rate for all.
Many want to eliminate the dreaded AMT, the so-called “death tax”, and the tax on capital gains and dividends. There is no doubt that the dreaded AMT must be destroyed. And doing away with the federal estate tax is not a bad idea, as long as the step-up in basis for inherited property is maintained. But doing away altogether with federal income tax on capital gains and dividends would certainly give the foolish Occupy Wall Street-ers something legitimate to protest. Warren Buffett would truly pay more tax than his secretary – he would pay no tax!
I wholeheartedly support doing away with the double-taxation of dividends – but at the corporate level and not the individual level. Corporations should be allowed to claim a “dividends paid” deduction. This would also, in effect, reduce the corporate tax, which most candidates support.
I do believe that the place to start is with the Bowles-Simpson “zero plan”, I do support keeping some basic tax expenditures – such as for charitable contributions, mortgage interest and real estate taxes (on the primary principle residence only), and state and local income taxes. As I have explained before, allowing a deduction for basic mortgage interest and real estate and state income taxes helps to “geographically equalize” the tax system (click here).
I have not discussed the candidates’ plans for corporate tax reform. I do support a lower corporate tax rate – but also call for doing away with all tax preferences and loopholes for corporations (as well as doing away with depreciation on real property for all taxpayers – corporate and individual). And I do agree with the Tax Foundation that the top rate for corporations should not be more than that of individuals so as not to erode the corporate tax base and distort business decision making.
So no candidate gets a perfect score from me. No candidate’s tax reform proposal is acceptable in full as offered. But it looks like Huntsman gets the highest grade (although perhaps not as high) from me as well.