Tax proposals from 2016 candidates offer stark contrasts
By Evan Lips | April 29, 2016, 19:09 EST
Here’s what we know: Roughly 60 percent of taxes paid in the U.S. go to the federal government, with about 27 percent flowing to states and the rest to municipalities, according to the Tax Policy Center in Washington.
What we don’t know is how that federal 60 percent figure, expected to amount to almost $3.64 trillion in the next fiscal year, will be affected once the next president takes office in January. Of the five remaining major-party contenders, four (Republicans Ted Cruz and Donald Trump and Democrats Hillary Clinton and Bernie Sanders), have outlined their federal tax proposals.
Ohio Gov. John Kasich, a Republican who is still gunning for the Republican nod despite having only won a single primary (his home state), has yet to offer details on his tax ideas. During an editorial board meeting earlier this month with the Washington Post, Kasich, confronted with questions about his plan (or a lack thereof), bristled.
Columnist Catherine Rampell was the first to grill Kasich during the meeting, pointing out that organizations like the nonpartisan Tax Foundation, Urban Institute-Brookings Tax Policy Center and Committee for a Responsible Federal Budget “have said they can’t score your tax plan because it’s too thin on details.”
A review of the organizations mentioned by Rampell shows she’s correct. Kasich, however, pointed out that he’s worked on “30 budgets in my lifetime.”
“I’ve cut taxes in Ohio,” Kasich added, according to a transcript of the meeting. “It’s not confusing. I’m going to have a 28, 25 and 10 percent rate.” To his credit, Kasich has carried along a ticking “debt clock,” displayed it prominently at town hall-style meetings on the campaign trail, and regularly refers to what it means for taxpayers. Kasich also regularly points out that he played an instrumental role in passing balanced federal budgets in Congress in the 1990s.
Later in the Post meeting, Kasich talked more about the 28/25/10 percent individual income tax rates. He mentioned deductions, such as those for state and local taxes, along with charitable donations.
“That’s what the plan is, OK?” he said. “It’s not – I mean – what more do you need? I can tell you what the rates are, I mean, what’s so difficult about this?”
The difficult part involves the details, the Urban-Brookings Tax Policy Center’s Leonard E. Burman wrote April 21 in a response to Kasich’s answers.
Kasich’s page-and-a-half plan may be appealing in its simplicity but Burman – who has worked under a Democratic administration as a tax analyst in President Bill Clinton’s Treasury Department – projects that the governor’s plan “would lose trillions of dollars, since he’d cut the current top rate from 39.6 to 28 percent.”
Burman and others at the Tax Policy Center have not exactly been friends to the GOP.
A scathing article that appeared last month in the Wall Street Journal noted that the center’s pronouncements have received “the most media attention in the electoral cycle” and accused it of ignoring “the interplay between policy and the macro economy” in ways that favor Democratic policy ideas. The critique harkened back to the issue of “dynamic scoring” of tax policies that prevailed during budget debates in Congress around the end of the last century.
The writers, Marc Sumerlin and Noah Williams, asserted that the center “disapproves of tax cuts” while “their recent evaluations of some Republican plans inflate the static costs of tax reform while ignoring the dynamic impact of tax reform on growth, and thus ultimately on government revenues as well.”
Kasich aside – and the Tax Policy Center aside as well – here is what we do know about the tax plans proposed by Clinton, Cruz, Sander and Trump, in their own words, and with the help of the Tax Foundation, a nonprofit group that has mined the tax code for data since 1937.
“We have to figure out how we’re going to make the tax system a fairer one. Right now, the wealthy pay too little and the middle class pays too much,” the former Secretary of State and New York Senator said during her opening statement at the Oct. 15, 2015, Democratic debate in Las Vegas. “So I have specific recommendations about how we’re going to close those loopholes, make it clear that the wealthy will have to pay their fair share, and have tax cuts for middle-class families.”
Clinton’s specific recommendations, based upon the tax policies outlined on her website, calls for “providing tax relief for small businesses and the middle class.”
Under Clinton’s plan, most Americans wouldn’t see a change in their take-home pay – she would maintain current tax rates, including increases established under President Barack Obama. Changes however would affect those earning more than $1 million. Clinton has said she intends to enact the “Buffett Rule,” which calls for a 30 percent minimum tax rate on those making more than $1 million.
Another 4 percent surtax would hit those with incomes topping $5 million. The Tax Foundation projects that Clinton’s plan would actually reduce America’s gross domestic product, the broadest measure of economic activity, by 1 percent over the long haul. The policy think tank says that while Clinton’s planned tax actions might in theory collect an extra $498 billion over 10 years, that ignores the negative dynamic effect the changes would have on the economy, which would cut the revenue increase to $191 billion.
The proposals from the U.S. Senator from Texas aren’t complicated – Cruz is calling for a 10 percent flat tax on all individual income, resulting in a $3.6 trillion tax cut over the next 10 years or so, he says.
“Provided it could be appropriately financed,” the Tax Foundation projects that GDP under Cruz would rise over the long term by almost 14 percent.
“On a static basis, the plan would cut taxes by 9.2 percent, on average, for all taxpayers,” the Tax Foundation concludes.
In Cruz’s own words:
“Imagine 4.9 million new jobs. Instead of Obama’s income stagnation, imagine average wages rising 12.2 percent over the next decade. Capital investment rising 43.9 percent. And every income-level seeing double-digit increases in after-tax income.”
Cruz’s boldest prediction predicts doom for the Internal Revenue Service:
“The IRS will cease to exist as we know it.”
Offering the polar opposite of Cruz, the plan from the Vermont Senator and self-described socialist would “increase marginal tax rates on all taxpayers, through higher individual income tax rates and two new payroll taxes,” the Tax Foundation analysis shows.
Simply put, no taxpayer bracket would see a reduction in federal taxes owed if Sanders’s plan is enacted: the bottom half would be hit with declines in after-tax income of roughly 5 percent, while the upper half would get clipped by at least 8.5 percent, the Tax Foundation said.
“After accounting for economic effects, taxpayers in all income groups would see their after-tax incomes decrease by at least 12.84 percent,” the report adds. “The top 1 percent of taxpayers would see their incomes decrease by 24.88 percent.”
According to Sanders, this is how he will “pay for his proposals.”
Kiss the estate tax goodbye if Trump, New York billionaire and former reality television star, wins the presidency. Or so says the political neophyte. Under his plan, what he has derided as “double taxation,” estate taxes would be abolished.
“The death tax is an unfair tax because the tax has already been paid,” Trump told ABC News in October.
Unlike Cruz, Trump’s plan calls for working within the existing tax framework. Like Cruz, however, Trump favors tax cuts. According to the Tax Foundation, Trump’s policy proposals, such as they are, would result in “substantial” lower individual income taxes.
How low? Those with taxable incomes of under $25,000 would owe no federal tax. Singles making between $25,000 and $50,000 would pay a 10 percent rate. Earn between $50,000 and $150,000? Expect to pay 20 percent. The rate would max out at 25 percent for those earning $150,000 or more.
The Tax Foundation estimates that Trump’s policies would inflate the economy by 11 percent in the long term. Wages would also rise by at least 6.5 percent.
Here’s what the Trump campaign has to say on its plan:
“No business of any size, from a Fortune 500 to a mom and pop shop to a freelancer living job to job, will pay more than 15 percent of their business income in taxes,” Trump says on his campaign website. He says the cut in the current 35 percent top corporate tax rate will spur business growth and job creation.
Federal revenue, however, would plummet by nearly $12 trillion over the next decade under the plan from Trump, who unlike his rivals has never held elective office or tried to balance a government budget.
According to poll results released in January, 25 percent of federal workers “would consider” quitting their jobs if Trump wins the White House.