GOP Candidates' Tax Plans Reduce Taxes on Wealthy, Increase Deficits

As the media focuses its attention on the Republican Party’s presidential nominating contest, several tax and budget organizations have taken turns examining the candidates’ tax proposals. In January, Citizens for Tax Justice (CTJ) released a report looking at the costs of each of the GOP contenders’ plans, and, just recently, the Tax Policy Center (TPC) scrutinized the distributional impacts of the candidates’ proposals. Both reports found that all of the contenders’ tax plans would disproportionately benefit the highest-income households and exacerbate budget deficits.

All four of the candidates left vying for the GOP nomination – Newt Gingrich, Ron Paul, Mitt Romney, and Rick Santorum – have tax plans that would slash taxes below their current modern lows. These tax cuts would cost the federal government trillions of dollars in revenue over the next decade, forcing deep and severe cuts to government services and likely undermining Social Security and Medicare. Although CTJ found that some of the contenders’ planned tax cuts would go to middle- and low-income families, the financial benefits would be "meager" and "would almost surely be offset by the huge cuts in public services that would become necessary as a result" of enactment of the candidates’ proposals.

Former House Speaker Newt Gingrich (R-GA) would significantly alter the federal tax code by introducing a flat tax option. Under the plan, a taxpayer could choose to pay according to the current system (with an assumption that Congress extends all the Bush tax cuts at the end of the year), or the individual could pay a flat 15 percent rate. Importantly, the alternative flat tax would exempt capital gains, dividends, and interest income from taxation, the benefits of which would overwhelmingly flow to the wealthy. According to CTJ, this plan would provide an average tax cut of over $391,000 to the richest one percent while providing an average tax cut of $1,990 to the middle fifth of Americans.

Gingrich would also reduce the corporate income tax rate from 35 to 12.5 percent and would allow corporations to fully expense their capital purchases. Also, his proposal would not eliminate any of the existing 250 or so tax expenditures currently written into the corporate tax code. Thus, the Gingrich tax plan would dramatically reduce tax revenues. In all, TPC finds that close to 42 percent of the benefits in Gingrich’s plan would go to the top one percent, and CTJ places the total cost of plan at $18.1 trillion in lost revenue over ten years.

Rep. Ron Paul’s (R-TX) tax plan proposes to repeal the 16th amendment to the Constitution, which created the income tax. Paul supports either a national sales tax or a flat tax but would not support either until Congress repeals the 16th amendment. According to CTJ, while the representative’s exact "position is unclear, it would seem to limit the federal government to the size it was in 1913, when the 16th amendment was adopted and made possible the taxes that fund our current defense apparatus, Social Security, Medicare, Medicaid and many other public services." Currently, about 47 percent of the nation’s revenue comes from the individual income tax. Implementation of either a national sales tax or a flat tax would flip the progressivity of the country’s current income tax-based tax code on its head, handing large tax benefits to the wealthiest members of our society and raising taxes on the poorest.

In late February, former Massachusetts Governor Mitt Romney presented his most recent tax plan, which economist David Cay Johnston has described as the Bush tax cuts "on steroids." The proposal would not only lock in the former president’s tax cuts, but would also provide an additional 20 percent tax cut across the board.

In practice, this means those earning under $60,000 a year would see their tax rates fall from 10 percent to eight percent, while tax rates for the highest income households would fall from 35 to 28 percent, providing significant benefits to households earning over $398,600 a year. In fact, the Tax Policy Center estimates that over 32 percent of the benefits of Romney’s proposal would flow to the top one percent and provide them with an average tax cut of close to $238,000. The top 0.1 percent of the income scale, which includes the former governor himself, could expect an average tax cut of over $1.1 million under the plan. Importantly, Romney would allow several provisions of the tax code enacted under the Recovery Act, which largely benefit middle- and low-income folks, to expire in order to pay for some of his tax proposal. These provisions include the American Opportunity tax credit, which helps families defray the cost of college, the expansion of the child tax credit, and the expansion of the earned income tax credit (EITC).

Romney would make two significant changes to the corporate tax code: he would reduce the corporate income tax rate from 35 percent to 25 percent, and he would make the research and experimentation tax credit permanent. His proposal also calls for a "repatriation holiday" for corporate profits held overseas, which would increase deficits over the long run and could push more investment overseas. The former governor is mum on whether those repatriated profits would face any taxes at all.

The Center on Budget and Policy Priorities (CBPP) concluded that mathematically, it would be "hard, if not impossible" for Romney to achieve all of his intended goals – "cut tax rates deeply, keep [a] low capital gains rate, raise current levels of revenue, and maintain [the] progressivity of [the] tax code" – at the same time. The Romney campaign is basing much of its plan on "dynamic scoring" – the belief that tax cuts will boost economic growth and, in turn, federal tax revenues. Without such scoring, the TPC estimates that the country would lose close to $5 trillion in revenue over the next ten years through the Romney tax plan, greatly expanding future deficits.

Like Romney, former Sen. Rick Santorum (R-PA) has also proposed doubling down on the Bush tax cuts. In fact, he would eliminate four of the current six tax brackets, leaving only a 10 percent and 28 percent bracket. This plan would significantly reduce taxes on large incomes, since it removes the top two tax rates. According to CTJ, the former senator’s tax plan would provide an average tax break of $217,500 to the wealthiest one percent and provide an average tax cut of $2,160 to the middle fifth of Americans. Santorum would also triple the exemption for dependent children while lowering capital gains and dividends tax rates from their current historic low of 15 percent to 12 percent. The benefits of the capital gains reduction would overwhelmingly go to the wealthiest households.

Santorum would halve the corporate tax rate to 17.5 percent – with a zero percent rate for manufacturers. Like Romney, the former senator has called for a repatriation holiday for overseas corporate profits in his proposal. Santorum's tax plan, according to estimates from CTJ, would result in roughly $9.4 trillion in lost revenue over the next decade. Over 56 percent of the benefits of the plan would go to those making more than $200,000 a year, while those making under $50,000 a year, or roughly 74 percent of taxpayers, would have to share 6.3 percent of the benefits of his plan.

All of the GOP candidates’ tax plans share some aspects. They all include repeal of the estate tax, which Congress enacted in the early twentieth century to prevent the over-concentration of wealth. Each would repeal the Affordable Care Act and all of the taxes associated with it. Each would also abolish the alternative minimum tax (AMT), which Congress originally enacted to prevent high-income earners from using special tax benefits to pay little or no tax (but because it wasn’t indexed to inflation, the AMT now has the potential to affect large numbers of taxpayers).

To pay for these tax cuts, the candidates would dramatically cut spending. Gingrich has proposed block granting and cutting funding by $2.4 trillion over the next nine years for over 100 federal means-tested programs. He has also called for eliminating most federal education spending, a cut of roughly $550 billion over nine years. Paul has proposed slashing some $7.5 trillion from federal spending over the next nine years. In addition to block granting federal entitlement programs like Gingrich, he would cut another $4.4 trillion in non-defense discretionary spending. This would affect everything from food and product safety, to air and water quality, as vital government services would likely be cut.

Romney would cut roughly $1.8 trillion from the federal budget over nine years by capping federal spending at 20 percent of gross domestic product (GDP). Santorum has proposed cutting some $8.3 trillion from federal spending over the next nine years by block granting federal social programs, cutting Social Security and Medicare, and reducing federal spending by $5 trillion over the first five years.

Each of these plans would have significant consequences, both by reducing tax rates and cutting the resources available to programs and services like Social Security, Medicare, environmental protection, and public health and safety.

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