Sydney M. Williams
Thought of the Day
“The Bush Tax Plan”
September 14, 2015
“You’re damned if you do and damned if you don’t.” That must sum up the way Jeb Bush felt after releasing his detailed tax plan. Serious voters want specifics of candidate’s proposals. An obsequious Press is less interested in disseminating news than in taking sides – flattering their favorites and condemning their opponents. An example was a headline in last week’s New York Times, a paper that thinks of itself as the nation’s newspaper: “Jeb Bush’s Plan is a Large Tax Cut for the Wealthiest.” The headline was misleading. The largest percent decrease in taxes would accrue to the median taxpayer; the lowest to those in the highest bracket.
It is not my purpose to defend Mr. Bush’s proposal, or to argue that it is the best alternative. It is to point out that it is a serious proposal and more important than listening to the antics of Mr. Trump and Ms. Clinton. The plan reduces the number of brackets and limits deductions; it addresses behavior the current system encourages. It is detailed. Other candidates should follow suit. Keep in mind, taxes affect behavior. Yet most analysts, when measuring the impact of a tax change, wrongly use static (as opposed to dynamic) accounting to calculate the effect
In respect to the current tax system, it is not that the wealthy do not pay their “fair” share; it is that the system is too cumbersome. It favors those who thrive on complexity and it encourages non-economic behavior. In terms of “fairness,” according to a Pew Research study using 2014 data from the IRS, the top 2.4% of all income tax filers (those earning above $250,000) paid 48.9% of all federal income taxes, while the bottom 45.9% of tax filers (those earning less than $30,000) paid 1.7 percent. Special exceptions, allowances and exemptions for favored individuals and businesses abet the cronyism that is rampant in
A 70,000-page tax code guarantees full employment to tax lawyers and
accountants. The code is loved by those who benefit from its complexity, but it
is a nightmare to the majority of Americans who must navigate its illegible
tables and indecipherable language. Washington
In terms of Mr. Bush’s plan, on the corporate side, it would reduce the stated corporate tax from 35% to 20%. (Keep in mind, the effective tax rate on profitable
corporations, according to
Americans for Tax Fairness, was 12.6% in 2010.) Complexities serve the wants of
large businesses and wealthy individuals. Simplicity is the enemy of tax
attorneys. Bush’s plan would eliminate interest payments as an expensed item,
which favors debt versus equity financing. It would allow for the expensing of
capital investing, which should encourage economic growth. S-Corporations, LLCs
and partnerships would continue to pay taxes under the personal tax code.
However, the pass-through rate would drop from 39.6% to 28%. The corporate AMT
(Alternate Minimum Tax), which requires calculating tax liability under two
sets of rules, would be eliminated. The plan would impose a one-time tax of
8.75%, payable over ten years, on the $2.1 trillion stashed overseas, which
would allow those funds to be brought back to be invested in U.S. projects.
And, to discourage “corporate inversions,” the plan would no longer tax
corporations’ international profits, placing U.S. businesses on a footing equal to
their international competitors. U.S.
As mentioned complexity favor large companies. Small businesses, historically the life-blood of job growth in the
do not have the same ability to reduce taxes as do large ones. Additionally,
many pay a higher nominal rate, as they file under the individual code.
According to the Citizens for Tax Justice, fifteen Fortune 500 companies paid
no tax in 2014, despite generating $23 billion in profits. While I cannot vouch
for those numbers, thousands of lawyers and accountants work to ensure the
limiting of tax obligations. The current system has not worked. Data from the
Bureau of Economic Analysis (BEA) suggests that in 2014 corporate taxes
(excluding payroll taxes) accounted for 10.6% of federal tax revenues. In the
1950s that number ranged between a quarter and a third of all federal tax revenues.
A report from the Bureau of Economic Analysis (BEA) shows that
inflation-adjusted GDP, since 1980, has risen 149%, while inflation-adjusted
corporate tax receipts were higher by 84.5%. U.S.
On the individual side, Mr. Bush’s plan would take the seven tax brackets and reduce them to three – 10%, 25% and 28%. Married couples with two children, with incomes below $38,600, would pay no tax. The plan proposes some radical changes. State and local taxes would no longer be deductible. The deductibility of state and local taxes means that low-or-no-income tax states like
Texas, New Hampshire and
Florida subsidize high-income-taxed states like
New York, California,
Connecticut and . Why should they? Mr. Bush would
eliminate the favorable treatment of “carried interest,” a benefit to a small
number of highly compensated private equity and hedge fund managers. The
personal exemption phase-out (PEP) would be eliminated and the standard
deduction would be raised, in the case of married filers, to $22,600 from
$12,600. Pease, or the limit on itemized deductions for high-income tax payers,
would also be eliminated. It would be replaced with a limit on the value of all
itemized deductions, with the exception of charitable gifts, to 2% of adjusted
gross income. The AMT, a bane to taxpayers and a boon to tax preparers, would
be eliminated. New Jersey
The Bush plan is a step toward addressing a corrupt agency, as well as resolving an unnecessarily complex system. It would boost economic growth. Not everything in the plan is to my liking. I would prefer a simpler system – a flat tax, with no deductions, including charitable gifts. The American people are generous and I suspect most charitable groups would survive. On the other hand, as has been revealed by the exposure of “charitable” organizations like the Clinton Foundation and Super PACs, some are fronts to maintain a lifestyle or to promote self-serving and/or political causes. The inheritance tax would disappear. The Bush proposal would reduce rates on investment income. In my opinion, since capital investments were taxed when they were income, it is wrong to tax their fruits. Mr. Bush would eliminate the requirement of seniors paying their share of the payroll tax. I would not. Social Security is bankrupt, or close to it. I would prefer to see the payroll tax extended – albeit at a lower rate – on all income.
Government spending represents about 22% of GDP. Financing that spending is the obligation of the American taxpayer. The collection agency is the IRS. As we learned in the Lois Lerner saga, the Agency has become corrupted for political purposes. Learning the specifics as to how each candidate plans to finance his or her government should be a primary focus of the campaigns. Mr. Bush has made a start; it is a plan worth debating. The others should follow.