Donald Trump unveiled a detailed plan for tax reform this week — four pages, complete with numbers and a graph. It didn’t win universal praise; one conservative economist dismissed it as “unserious.” But merely having a plan vaulted Trump into an elite group: the GOP presidential candidates who have bothered to lay out specific economic proposals.
The strangest thing about this year’s Republican campaign (other than Trump) is how it’s been hijacked by social issues: immigration, abortion, even whether a Muslim can serve as president. The issues most voters list as their biggest concerns — economic growth and jobs — have taken a back seat.
Yes, the leading candidates all promise they’ll spur the economy by lowering taxes and cutting government spending — standard conservative boilerplate.
But except for Trump, Jeb Bush and Marco Rubio, none of them have said exactly how. Ben Carson has said he’d favor a biblical tithe of 10%, which seems like cheating. Ted Cruz has said he favors a flat tax with one rate for everybody, but he hasn’t said what that rate should be. And Carly Fiorina has said merely that she’d make taxes lower and simpler. (Chris Christie and Rand Paul have offered specific proposals too, but they’re not exactly leading candidates at this point.)
Still, among the proposals with real detail, there’s a rough consensus, and it comes down to this: lower taxes for everybody, but especially for the wealthy. All the candidates would cut corporate taxes significantly, a cornerstone of GOP policy to give businesses a break. And, according to tax experts, they’d all blow a hole in the federal budget of $2.4 trillion or more over the next 10 years.
Only a few years ago, Republicans, especially tea party ones, spent much of their time lamenting the growth of the federal budget and the national debt. This year’s candidates, however, barely mention that worry. Instead, they rely on an article of faith that has been central to Republicans since the days of Ronald Reagan: Lower taxes will stimulate enough economic growth to make the deficit go away.
“This plan … will grow the American economy at a level that it hasn’t seen for decades,” Trump promised Tuesday.
Rubio’s plan is the most interesting, in some respects. Like everyone else, he would cut the top income tax rate — in his case, from 39.6% to 35%. And he would reduce taxes on capital gains and dividend income to zero, a boon to wealthy investors.
But the centerpiece of Rubio’s plan, at least for campaign purposes, is a big increase in the tax credit for families with children, from $1,000 per child to $2,500 per child. It’s a middle-class tax cut that favors big families.
Bush’s tax cut is even bigger. He’d cut the top income tax rate to 28%. He’d cut the top rate on capital gains from 23.8% to 20%, and the top rate on interest income from 39.6% to 20%. All of those breaks would mostly favor the wealthy. But Bush offers some breaks for low-income workers too. He’d increase the standard deduction and the earned income tax credit — measures that would free (by his estimate) 15 million more Americans from paying income tax at all.
He would pay for some of the cuts by eliminating the current tax deduction for state and local taxes (tough on people in high-tax states like California) and capping most other deductions at 2% of income (tough on people with jumbo mortgages).
If Bush’s tax cut is big, Trump’s is, appropriately, “yooge” — but otherwise similar. Instead of Bush’s top rate of 28%, Trump proposes a top rate of 25%. He proposes the same cut in capital gains, to 20%, and a deeper cut in the top corporate tax rate, to 15%.
He said he would phase out most deductions and other “loopholes” for the affluent, but he didn’t provide any details.
And in a flourish of Trumpian marketing, he said individuals earning less than $25,000 a year would send the IRS a one-page tax return with two words — “I win” — and pay nothing.
And what about Trump’s promised haircut for hedge fund managers who, under current law, count some income from their jobs as capital gains, which means they pay lower tax rates?
Both Trump and Bush eliminate that loophole, known as “carried interest.” But Trump replaces the capital gains rate of 23.8% with a top income tax rate of 25% — not much of a difference. And because the financiers’ ordinary income would benefit from a big income tax cut, they could come out ahead.
And that points out a problem the eventual Republican nominee for president will face. Right now, in the primary campaign, they’re competing over whose tax cut is the biggest, and they’re barely even playing down the relief they’d give the top 1%.
In 2012, exit polls found that 53% of voters believed Mitt Romney’s policies favored the wealthy more than the middle class, and Romney won only 47% of the popular vote.
It’s hard to see how another Republican, even a master salesman like Donald Trump, could sell the same platform in 2016.