Most Americans do not pay any federal income tax. This means to most Americans when Republicans talk about changing the income tax system, they could care less.
It is a hard truth. The candidates can talk all they want about the confusing, complicated, and time-consuming tax system; however, to most Americans who do not pay federal taxes, it just does not matter.
Why then is there so much emphasis in the Republican primaries about taxes? The answer, I believe is two-fold.
First, most Republicans understand business and know the damage high taxes can cause: less money for companies to expand, less money for bonuses, less money to hire workers for speculative business opportunities, and less money for small businesses to use to finance expansion. With high tax rates, business growth suffers and the economy slows.
Second, and this is probably more important. Tax policy gives voters an insight into the philosophy of each candidate. It shows us how each candidate thinks, it describes their priorities and their values. A tax plan in short gives us more insight into each candidate’s true beliefs.
So what does each candidate’s plan tell us about them?
As one might expect there are a lot similarities between the tax plans offered by the moderates: Jeb Bush, Chris Christie, and John Kasich. Each reduces the highest tax rate to 28% and Christie and Kasich lower the corporate tax rate to 25% while Bush lowers the corporate tax rate to 20%.
These proposals reveal that these men are practical and that they understand that high tax rates are harming our competitiveness. However, it also reveals they fail to understand that a bloated tax system wastes valuable time, resources and hinders growth. It also shows they are willing to continue the corruption that this complicated tax code enables. It shows they are willing to allow Congress to continue giving favorable tax treatment to the politically connected.
While the ‘moderates’ keep the existing structure, [mc_name name=’Sen. Ted Cruz (R-TX)’ chamber=’senate’ mcid=’C001098′ ], Mike Huckabee, and [mc_name name=’Sen. Rand Paul (R-KY)’ chamber=’senate’ mcid=’P000603′ ] each scrap the existing income tax system. Cruz and Paul each propose a hybrid tax system with a low income tax rate and use a value added tax to replace both the corporate income tax and payroll taxes. Huckabee eliminates any income tax with a national sales tax. These tax plans match these candidates’ position as reformers. They understand that corporatism, the collusion between government and big corporations, is one of the biggest problems in America today.
Trump’s tax plan, like the man, knows no bounds. While his reduction in tax rates is attractive, they have no basis in reality. He does not provide meaningful cuts to offset the reduction in tax rates. According to the Tax Foundation, his tax plan reduces tax revenue by almost 10 Trillion over a 10 year period without any reduction in spending. In fact, Trump is even advocating for more spending for college education among other programs. Trump’s tax plan also does nothing to reduce the complexity of the tax code. It is good in that it represents a desire for people to pay less in taxes, but a desire without a plan is just a dream.
Carson’s tax plan is also like the man. It seems nice, fair, but it is the plan of a novice. He describes a desire to have a flat tax with a 10-15% rate, but provides no more details of how this will be achieved. Fiorina, specifies she wants a 3 page tax plan. Wonderful but she specifies no other details. How about 3 pages on the details of your plan Fiorina?
[mc_name name=’Sen. Marco Rubio (R-FL)’ chamber=’senate’ mcid=’R000595′ ]’s tax plan is the most surprising….and the most disappointing. Like the moderates, he only fiddles with the tax system. He only reduces the corporate tax rate to 25% and unlike the moderates who reduce the top marginal tax rate to 28%, he only reduces the top marginal rate to 35%!
What happened to the man elected as a Tea Party favorite? Perhaps he not only modified his views on illegal immigration but also on limited government as well? He talks a great game, but his tax plan reveals he has big government plans.
What the moderates, Trump, and Rubio also fail to address in their tax policies is the biggest tax burden imposed on Americans during the progressive era–the payroll tax. Until 1949, payroll taxes were only 2%. (Tax Policy Center) In the 1950s, it was less than 6%. Today, social security alone, without Medicare, takes 12.4% of American salaries. Add Medicare and it now totals 15.3%.
Cruz, Paul, and Huckabee all eliminate payroll taxes. This would be a huge boon to middle class families and make it easier for businesses to hire employees.
Cruz, Paul, and Huckabee’s plans have another huge benefit. It removes the tax incentive for companies to offshore, gets foreign companies to pay the same tax rates as domestic companies, and does not discourage exports. Every company, regardless where it is located, pays the same tax so American corporations would no longer have an incentive to move their corporate headquarters overseas and since exports are not taxed under these plans, exports would increase. Currently, many American companies locate overseas not because it is more efficient but because other nations do not tax exports. For example, the CEO of a refining company said that while they could refine cheaper in the U.S., they located in Germany because Germany does not tax their overseas earning. Any of these three tax plans would bring more production and jobs back to the U.S.
While Huckabee’s national sales tax idea would eliminate the complexity of the tax code, I have not seen a good way to make such a massive transition and a national sales tax would destroy the value of savings for millions of Americans. On the other hand, both Cruz and Paul use a value added tax that is already in use by most major economic powers and would therefore be easy to adopt in the U.S. Additionally, Cruz and Paul both specify exactly the impact of their budget plans and are both reasonable in terms of balancing the budget. According to the Tax foundation, with dynamic scoring Paul’s plan actually generates a budge surplus over 10 years while Cruz’s plan is virtually in-balance after his recently specified cuts.
Either Cruz or Paul’s tax plans are superior to the other candidates’ offerings; however, since Paul’s campaign is unlikely to survive much longer (not to mention the opposition of many conservative), this means there is one clear winner: Ted Cruz.