With the American economy being in a state of stagnation, it’s no wonder that Republican presidential candidates are eyeing tax reforms that they hope will jumpstart economic growth and job creation.
The US tax code is a monstrosity at 74,608 pages long. The corporate tax rate is 35%, the most devastating in the world. The current system is separated into six brackets, ranging from 10 to 39.6%, with countless regulations, deductions, exemptions, and loopholes. The federal government has collaborated with corporate lobbyists to pick winners and losers in the tax code, and it needs to be stopped once and for all.
Under both Republican and Democrat Presidents, simplifying and flattening federal taxation has shown to encourage prosperity among all classes of Americans. Economic growth follows, meaning that more and better jobs become available and incomes rise for everyone.
If tax reforms are bold enough, revenue to the government actually increases due to economic growth, and federal deficits can be reduced. It worked when President Kennedy did it, and it worked when Presidents Coolidge and Reagan did it.
Most Republican candidates have already put out their plans for tax reform, so let’s take a look. (Plans are listed in the approximate order they were released.)
Sen. Paul has outlined a 14.5% flat tax on all filers making $50,000 or more, including businesses. The plan also increases the standard deduction to $15,000 per filer and the personal exemption to $5,000 per person. Paul’s Flat and Fair Tax plan would abolish the payroll tax and essentially kill the existing tax code. Paul’s plan was co-authored with economist Stephen Moore and received praise from Reagan economist Art Laffer. Click here for analysis.
Bush has put forth a plan that would separate the populace into three tax brackets–top earners pay 28%, the next bracket pays 25%, and the lower bracket pays 10%. The top rate starts at $85,750 for individuals and $141,200 for joint filers. The Bush plan increases the standard deduction to $11,300 for single filers and $22,600 for joint filers. The plan also lowers the corporate rate to 20% while leveling an 8.75% tax on companies that move their businesses overseas.
Trump’s plan would lower the corporate rate to 15% and the top bracket to 25%, levied on couples who make at least $300,000. It would also eliminate the federal income tax for those making below $25,000 and couples making below $50,000. The other two brackets would pay 20% ($100,000-$300,000) and 10% ($50,000-$100,000) respectively. The Trump tax plan would eliminate or reduce deductions and loopholes for top earners and, like Bush, he would tax companies who take their business overseas at a rate of 10%. Click here for analysis.
Gov. Christie’s plan is very similar to the Romney 2012 plan. It would reduce the top rate to 28%, the lowest rate to 8%, and the corporate rate to 25%. He also called for a cap on credits and deductions that individual filers can take.
Santorum has proposed a flat tax plan of 20%. Individuals would receive a $2,750 credit, replacing the standard deduction and personal exemption. The former Senator said he would start with a 0% corporate tax for manufacturing companies, phased up to 20% over a two year period. Itemized deductions would be eliminated, except for charitable giving and mortgage interest.
The Kasich plan calls for three brackets, lowering the top rate to 28%, the corporate rate to 25%, and 15% for capital gains.
Cruz has proposed a 10% Simple Flat Tax for all individual filers. For a family of four, the first $36,000 will be tax-free. The standard deduction would be $10,000 and the personal exemption $4,000. Under Cruz’s plan, businesses would pay a 16% rate. The Cruz plan also ends the payroll tax.
Sen. Rubio’s plan, (which is different than the tax plan he proposed in partnership with Sen. Mike Lee last year), calls for three brackets: 35%, 25%, and 15%. The top rate kicks in at $150,000 for individuals and $300,000 for couples. Those who make between $75,000 and $150,000, and couples who make $150,000 to $300,000, pay 25%. Everyone else pays 15%, except for corporations and businesses which would pay 25%. The Rubio plan creates a new personal tax credit in place of the standard deduction as well as a Child Tax Credit.
Ben Carson has announced a 14.9% Flat Tax that would apply to income at more than 150% of the poverty level. Carson would throw out the existing tax code, including eliminating deductions for home mortgage interest, charitable giving, and state and local taxes.
Mike Huckabee is the only candidate calling for a Fair Tax, which would eliminate the income tax and replace it with a national tax on consumption. Huckabee has yet to release a detailed plan, but some have suggested the amount of the consumption tax will be 23% and that it will maintain monthly rebates for low-income households. The Fair Tax faces an extra hurdle in that it would require a constitutional amendment in order to repeal the income tax.
We will update this post as more tax plans are made available.