With the mania of Iowa in the rear-view mirror, and the New Hampshire caucus coming up, I’ve been really distracted by American political ongoings. More specifically, I’ve been hate-reading some of the Republican candidates’ platforms (and for some reason, when I do so, I find myself instinctively shielding my womb). For all the flashy campaign promises to pan out, they have to be funded in some way—and therefore personal income tax policy, being an important source of government revenue, is essentially important for assessing the crop of GOP candidates.
Currently in the US there are seven personal income tax brackets, the marginal tax rates of which range from 10 to 39.6 per cent. The standard deduction is $12,600 for households and $6,300 for single-person households. Personal income taxes raise $1.64 trillion a year for the government, making up roughly half of all federal tax revenues, which then fund social security, Medicare and Medicaid, defense spending, interest payments on federal debt, and many other government programs. With all this in mind, I looked at the tax platforms of Donald Trump, Jeb Bush, Ted Cruz, Marco Rubio, and Ben Carson, the five front-runners in the Republican race. What I found there—in varying levels of coherence—was surprising diversity in the progressivity, feasibility, and insanity of their tax proposals.
1) Donald Trump is relatively sane
Trump is playing the Bernie Sanders angle, heralding tax relief for poor and middle class Americans, and threatening the rich guys (like himself) who underpay in taxes. His plan would exempt any households earning under $50,000 from paying taxes, the most generous standard deduction proposal of all his opponents. In addition, he would streamline the tax system to make three brackets instead of seven—with lower rates of 10, 20, and 25 per cent of income. Trump also promises to simplify the tax code by getting rid of loopholes, deductions, and other special interest clauses that would favour the rich.
2) Jeb (or, as his campaign has dubbed him, Jeb!) makes me sad
For some reason, when Jeb! protests against crony capitalism and Washington lobbyist power like the other candidates, I just don’t believe it. There’s a certain sadness to Jeb!. Maybe it’s because Jeb! himself is a product (and the pet candidate) of the 1 per cent, and comes from a dynasty of politically powerful Monopoly men. In a crowded field of candidates, his tax plan is just not crazy enough. Yes, he wants to cut the seven brackets down to three, with rates of 10, 25 and 28 per cent, trumpeting a return to Reagan-era low marginal rates. And he too wants to find and destroy loopholes (although, like most of the other candidates, these “special interest loopholes” remain undefined). But it’s a weak imitation of Trump’s plan that lacks the bombast of Trump’s delivery. In an election cycle that appears to be rewarding madcap, burn-it-down upheaval while punishing evidence-based incremental change, Jeb! may just not be nutty enough.
3) Ted Cruz goes big—and hopefully will go home empty-handed
I half-admire Ted Cruz because he really takes policy to the extreme. It’s not enough to cut a few tax brackets—for Ted, it’s time to abolish all tax brackets. He proposes a flat tax that would tax every household in America at a 10 per cent rate, and only after a standard deduction of $36,000. His justifications for the flat tax are to end the IRS and Washington ‘cartel’ and to crusade against crony capitalism. And although GDP growth and job creation may result (due in part to the elimination of payroll taxes and corporate taxes—yes, the elimination of payroll taxes and corporate taxes), government revenue will be decimated. Back of the napkin estimates put the decade-long revenue shortfall at $11.8 trillion. I will hand it to him: Cruz is sticking to his guns when it comes to his ideological commitment to reining in government spending.
4) ¡Marco¡ Rubio is like Jeb! but more extreme
It was hard not to be charmed by Rubio’s boyish telenovela good looks, but then I looked at his tax plan. He, like Jeb! and Trump, proposes to cut the number of brackets from seven to three, although his top rate is a relatively high 35 per cent, which is surprisingly progressive in comparison to the other guys. The main thrust of his platform is to basically incentivize baby-making (or as he terms it, a “pro-family” tax plan): he would introduce generous child benefits and promote paid family leave with tax credits. In a very pro-1 per cent move, he wants to abolish the taxation of capital gains, dividend income, and interest income. Rubio clearly hasn’t heard the Sanders anti-1 per cent clarion call, or hasn’t noticed the effect it is having on Sanders’ political support, which is so successful that even Trump, the personification of unbridled capitalism, is cribbing notes from a democratic socialist.
5) Didn’t Ben Carson stab a guy?
Ben Carson has a hashtag for his tax platform: #CarsonFlatTax. Catchy. He promises to repeal the entire tax code and replace it with a flat 14.9 rate (a rate still not as crazy as Ted Cruz’s, though). The standard deduction would be $36,000, although those earning less would pay a $100 tax. Like Rubio, he would get rid of the taxation of capital gains, dividends, and interest income. There would also be no deductions or loopholes—no charitable donation deductions, no mortgage interest deductions, no nothing, just a single piece of legislation with a flat rate. It’s, uh, bold. It is apparently based on biblical tithing. And it is probably setting off mad glee in the homes of million-and-billionaires.
Some final observations
Lowering tax rates is classic neoliberal economics, a move especially popular with conservatives because it links lower tax rates to increased savings, investments, and consumption, which all boost long-run productivity and create job growth. I won’t argue against those assertions. Cutting tax rates can definitely spur private investment and economic growth by leaving more money in businesses’ and consumers’ pockets. But I will point to the debilitating revenue effects that tax cuts can have on government accounts, which will necessitate program spending cutbacks. It is especially dangerous for low-income people who rely on these programs.
Reducing the progressivity of the tax system also has distributional effects that impact the worst-off. Flat taxes are popular among those who want to maximize efficiency in the tax system. That’s a fair desire. A flat tax treats everyone the same, minimizes complexity, and expands the tax base, but it does not serve the same redistributive function as a progressive tax system and could exacerbate income inequality. While flat taxes have been considered successful in corrupt countries with quite a bit of tax evasion, such as Russia, it’s hard to believe that a flat tax would be as successful in America.
Lastly, several of the proposals would abolish the taxation of capital gains, dividends, and interest income. Wealthier Americans earn a larger percent of their income from non-labour sources, such as stock options and investment income, and therefore not taxing these alternative forms of income really serves to benefit the richest people.
It’s heartening to see that tax reform is a priority on the agenda of all of the leading Republican candidates—but it’s less heartening to see that their proposals range from “let’s rejig the tax system in favour of the richest guys” to “let’s straight-up bankrupt the government.” Perhaps more worrisome is that they’ve all claim to have done the math. Their promises of revenue neutrality are laughable, as is the thought that tax reform alone can lead to the return of a perpetually prosperous America. The majority of these policies rest upon a shaky foundation of bad math, questionable assumptions, and ideological doctrine. So remember that what is so entertaining to watch from a Canadian vantage point could also pose a considerable threat to the functioning of the American government.
Jenny Mutton is about to graduate from University of Toronto’s School of Public Policy and Governance with an MPP. She previously attended McGill University, where she majored in economics and got interested in public finance and tax policy. As co-editor-in-chief of the PPGR, she loves some good, sassy commentary.