One of the least examined aspects of governance at the national level in the three major presidential debates that have been held thus far is the examination of the candidate's tax .plans. Economists have learned that the plans introduced thus far will either drive up the budgetary deficit in the future or there is insufficient detail to adequately evaluate the plans.
The main features of Donald Trump's tax plan is that there will be four tax rates: 0, 10, 20 and 25%; businesses and corporations will have a taxation rate of 15%; and there will be some unspecified elimination of tax breaks for the wealthy, focused especially on hedge fund managers. Individual taxpayers earning $25,000 or less will pay no federal income tax and taxpayers filing jointly and earning $50,000 or less will pay no federal income tax.
Trump would eliminate the alternative minimum tax, the marriage penalty, the "carried interest loophole", and the 40% tax on an inheritance over $5.4 million. He would retain the 20% rate for dividends and capital gains held over one year. Trump would retain two popular tax deductions: the home mortgage deduction and the deduction for charitable giving. These two deductions reduce federal revenue by about $120 billion a year.
The Tax Foundation, considered to have a pro-business orientation, has estimated that the Trump tax plan would increase the budgetary deficit by $10 trillion over the next decade. The caveat is that not enough is known about the current tax breaks that Trump might reduce or eliminate to be precise about the $10 trillion figure. In this connection, when the Tax Policy Center evaluated Mitt Romney's taxation plan in the 2012 presidential campaign, it concluded that even if all tax breaks were eliminated it would not nearly equal the tax reductions that Romney was proposing.
One of the main features of Jeb Bush's tax plan is that it would reduce the top marginal tax rate from 39.6% to 28%. The Bush plan has been estimated to increase the budgetary deficit by $2 trillion over ten years.
Ben Carson has proposed that taxpayers pay a Biblical tithe, whereby a businessman earning $10 million would pay $1 million in federal income tax and a secretary earning $50,000 would pay $5,000 in federal income tax. When appearing on Fox News Sunday in early May 2015, Chris Wallace told Carson that the economists he had consulted said that the tax rate would need to be 20% to equal the current revenue stream. Carson answered that the economists he consulted said the rate would not need to over 15% at the most; however, the Tax Policy Center says the tax rate would need to be a minimum of 25% to reach the same objective of tax neutrality.
I have calculated that a family unit earning $200,000 in 2014 would have paid $20,000 in taxes under a 10% Carson plan and $42,800 under the 2014 tax rate schedule. Taxpayers at higher earnings levels would receive even more generous tax savings.
Mike Huckabee wants a sales tax instead of an income tax. Considering that local jurisdictions have sales taxes -- there are Alabama counties that have a sales tax of at least 9% -- consider the mass public revolt if a federal sales tax was added to a local sales tax of, say, 7 or 8%. Rand Paul wants a 17% flat tax and he would eliminate all taxes on capital gains, dividends and interest. Ted Cruz also wants a flat tax and he would eliminate the IRS.
The tax extremism of most of the Republican presidential contenders is perhaps illustrated most fulsomely by Governor Scott walker, while he was still a presidential contender.Walker had once proposed eliminating Wisconsin's income tax and when asked about eliminating the federal income tax, he replied: "Sounds pretty tempting right now."
Switching to the Democratic side, Bernie Sanders has certainly made it abundantly clear that the wealthy must pay much more in income taxes; however, to my knowledge, except for proposing a financial transactions tax, Sanders has not proposed a new tax rate schedule with a much higher top marginal tax rate. Democrats, too often, I believe, talk about the wealthy paying their fair share without defining what a fair share is.
Hillary Clinton said in the first Democratic presidential debate that she wanted the wealthy to pay for providing free tuition for college and university students; however, she also has not proposed a more robust tax rate schedule.
One of the best ways to reduce income and wealth inequality in the nation is to have a progressive income tax rate schedule with a top marginal tax rate of 60 to 70%, so that the wealthy pay a higher percentage of their income in taxes. It is noteworthy that from the Second World War to the Ronald Reagan presidency, the top marginal tax rate was never below 70%. Those years were a period of great economic prosperity; also, the gap in wealth and income inequality were much narrower than it is today.
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