With the first round of debates behind us and a slightly smaller pool of candidates, pressure is increasing on those who are still in the game to move past vague references to tax reform and put out concrete proposals and ideas. Although not all of the candidates have released detailed tax plans, a number of them have, and some of the proposals are quite drastic. While most of these plans are unlikely to become law, they nonetheless will shape the debate and elevate the issue of tax reform on a nationwide basis.
Jeb Bush (R). In a Wall Street Journal op-ed, Mr. Bush calls for a “complete overhaul of the U.S. tax code”, including lower rates (28% maximum) and fewer tax brackets (three), nearly doubling the standard deduction, eliminating the marriage penalty, expanding the Code Sec. 32 earned income tax credit (EITC), and ending the estate tax, alternative minimum tax (AMT), and employee’s share of the Social Security tax for older workers. According to Mr. Bush, “roughly 15 million Americans would no longer bear any income-tax liability.” He would also cut corporate taxes from 35% to 20%, end worldwide taxation, assess a one-time 8.75% tax on overseas profits (payable over 10 years), and allow for immediate deductions for new capital investments (coupled with an elimination of most corporate tax deductions).
Ben Carson (R). Dr. Carson’s campaign website doesn’t have a formal tax plan but does call for a “fairer, simpler, and more equitable system” and a tax form that can be “completed in less than 15 minutes”. He has also spoken about the flat tax, analogizing it to tithing, and has called it “very condescending” to poor people to tax their income at a different rate than the wealthy.
Lincoln Chafee (D). Mr. Chafee would generally retain most of the Code, but would increase the capital gains and dividends rate to 25%, and add a new 45% income tax bracket, for taxpayers with incomes in excess of $750,000. He would also raise the personal exemption amount by $1,000.
Chris Christie (R). Mr. Christie outlined his tax plan in an op-ed titled “My Plan to Raise Growth and Incomes”. He would lower the number of income tax brackets to three, set the top rate at a maximum of 28% and the bottom rate at an unspecified “single digit”, “eliminate or modify enough deductions, credits and targeted provisions in the code—both on the personal and the corporate side—to ensure that the plan, combined with other measures… is revenue neutral”, and retain the deductions for charitable contributions and home mortgage interest, at least for a first home. He also has spoken in favor of a one-time repatriation holiday where U.S. companies could repatriate overseas profits at a 8.75% rate.
Hillary Clinton (D). Earlier this year, Ms. Clinton unveiled a capital gains proposal that would reflect a fairly major departure from the existing system, but only in respect to taxpayers in the highest tax bracket. Under existing law, favorable long-term capital gains treatment applies after an asset is held for one year. Ms. Clinton would implement a graduated holding period where the rate would decrease, from 39.6% to 20%, over a 6-year period. She asserts that this reform would reward long-term investment and would be progressive because it would limit the tax advantage for capital gains that would be available to the highest earners. In addition, she would provide for zero capital gains tax on qualified small business stock held for more than five years, as well as on long-term investments in “hard-hit and low-income communities” that would work in tandem with a newly expanded the Code Sec. 45D New Markets Tax Credit.
Her campaign website also says that she supports ending the carried interest loophole (under which private equity and hedge fund managers are taxed at capital gains rather than ordinary income rates on fund income), enacting the Buffett rule (under which those making more than $1 million a year wouldn’t pay a smaller share of their income in taxes than middle class families pay), and making the Code Sec. 25A American Opportunity Tax Credit (which provides an up-to $2,500 credit for qualifying tuition and other expenses) permanent.
Ms. Clinton has also called for tax reforms that are intended to empower workers, including a $1,500 “apprenticeship tax credit” for every new worker that a business trains and hires, and a new 15% tax credit for employers that share profits with their workers. She has also argued in favor of making the Code Sec. 41 research credit permanent.
Mike Huckabee (R). Mr. Huckabee would replace the individual income tax (and associated credits, deductions, alternative minimum tax, payroll tax, etc.) with a 23% federal sales tax (the so-called “Fair Tax”), with rebates for lower-income taxpayers.
Bobby Jindal (R). Mr. Jindal would lower rates and reduce the number of tax brackets to three—2%, 10%, and 25%—stating that requiring all taxpayers to pay at least some income tax ensures that they have “some skin in the game”. For individuals, his plan would eliminate the personal exemption and standard deduction, as well as all itemized deductions except for charitable contribution deductions, and include a modified version of the earned income credit, a modified mortgage interest deduction, a new deduction for health insurance costs (to replace the exclusion for employer-based health insurance), and a nonrefundable dependents credit that would cover children, low-earning taxpayers over 65, and the disabled. His plan would also eliminate the AMT, corporate income tax, the 3.8% net investment income tax (NIIT), estate and gift taxes, and “all Obamacare taxes” (presumably, the individual and employer mandates, the 40% tax on high cost employer-sponsored health coverage (i.e., the Cadillac tax), and the 2.3% medical device tax); shift to a territorial tax system; and tax capital gains and dividends as ordinary income.
John Kasich (R). Mr. Kasich released his “Action Plan” aimed at cutting taxes and making the Code “simpler and fairer.” For individuals, his proposed reforms would include lowering the rates (to a top rate of 28%), reducing the number of tax brackets (from seven to three), increasing the EITC by 10%, reduce the long-term capital gains rate to 15%, eliminating the estate tax, and simplifying deductions while retaining those for charitable donations and mortgage interest.
For businesses, Mr. Kasich would reduce the top business rate from 35% to 25%, double the Code Sec. 41 research and development (R&D) credit, and encourage businesses to repatriate overseas profits by subjecting them to an unspecified “low rate”. He would also shift the U.S.’s worldwide tax system (under which a U.S. taxpayer is generally taxed on his worldwide income wherever earned) to a territorial system (under which income would generally be taxed in the country where it is earned), allow for immediate expensing of the costs of new equipment, machinery and buildings, and review existing policies to “identify and eliminate barriers to research, innovation, commercialization of new breakthroughs and start-up business success”.
Rand Paul (R). Mr. Paul set out his tax plan in an op-ed titled “Blow Up the Tax Code and Start Over”. He stated that the current code is “so corrupt, complicated, intrusive and antigrowth” that it cannot be fixed and should be repealed in full.
He would offer in its place “The Fair and Flat Tax”, which would be a 14.5% flat tax on individuals and businesses. For individuals, the rate would apply equally to all personal income including wages, salaries, dividends, capital gains, rents, and interest. All deductions except for mortgage interest and charitable deductions would be eliminated. In addition, the first $50,000 of income for a family of four would not be taxed, and the Code Sec. 32 EITC would be retained. However, he would eliminate what he refers to as “nearly every special-interest loophole”, as well as the payroll tax and the gift and estate taxes.
For businesses, the 14.5% tax would be levied on revenues minus “allowable expenses”, for which he offered as examples the purchase of parts, computers, and office equipment. All capital purchases would be immediately expensed instead of depreciated.
Marco Rubio (R). Marco Rubio’s tax plan (taken from materials on his campaign website as well as his “Economic Growth and Family Fairness Tax Reform Plan” released earlier this year with Sen. Mike Lee (R-UT)) for individuals would: reduce the number of tax brackets to two (15% and 35%); “consolidate and enhance” the Code Sec. 24 child tax credit (raising the amount from $1,000 to $2,500); reform the Code Sec. 32 EITC; and eliminate capital gains taxes, taxes on dividends, estate tax, the standard deduction and personal exemption (replacing them with a “personal credit”), the additional Medicare tax, all itemized deductions except for a reformed home mortgage deduction and charitable deduction, and the AMT.
For businesses, Mr. Rubio’s plan would, among other things: provide for full, immediate expensing of business capital investments; create parity in the tax treatment of corporations and pass-through entities and subject both to a 25% rate; eliminate “extraneous” business tax provisions and let the extender provisions stay expired; take various steps to “eliminate the pro-debt bias in the current code”; and transition away from the U.S.’s worldwide tax system to an international dividend exemption system, including a deemed repatriation at a 6% rate.
Bernie Sanders (D). Although he hasn’t introduced a campaign tax reform plan, Mr. Sanders has clearly stated his desire to raise taxes on the wealthy. He introduced the “Responsible Estate Tax Act” last fall, which would lower the estate tax exemption to $3.5 million, raise the top rate to 55% (with a 10% surtax on estates over $500 million), and lower the gift tax annual exclusion. He has also spoken out against certain corporate tax practices such as sheltering profits overseas. During his campaign, he has stated that he would raise the NIIT (from 3.8% to 10%). In recent years, he has also offered tax proposals that would, among other things, tax capital gains and dividends of the wealthiest 2% at the same rate as ordinary income.
Rick Santorum (R). Mr. Santorum’s “Economic Freedom Agenda” would involve simplifying the Code and “end[ing] the IRS as we know it.” He proposes replacing the existing Code with his “20/20 Flat Tax Plan.” For individuals, this would entail a 20% flat tax, with a $2,750 “personal credit” and retention of the $1,000 child tax credit. He would also repeal the various taxes associated with Obamacare (e.g., NIIT), as well as the entire health law itself, the estate tax, and the AMT. Businesses would be subject to the same 20% rate on business income and would be allowed full expensing of business investments in the year of purchase.
Donald Trump (R). The “Trump Tax Plan” would exempt from income tax single taxpayers earning less than $25,000 and married taxpayers earning less than $50,000, reduce the tax rates (to a 25% maximum) and number of brackets (to four), reduce the corporate tax rate to a 15% maximum, and eliminate the estate tax and the AMT. He says that these reforms would remove “nearly 75 million households… from the income tax rolls”, and asserts that these tax cuts are fully paid for by eliminating deductions and loopholes—such as reforming the treatment of “carried interest”—and having a one-time deemed repatriation of overseas profits at a 10% rate. He would, however, retain deductions for charitable contributions and mortgage interest.
Generalizations among other candidates. A number of Republican candidates have not yet issued a tax plan but have indicated a general support for a flat tax, such as Ted Cruz and Lindsey Graham. In addition, although many candidates have called for doing away with most deductions (in conjunction with lowering the rate), as seen above, the deductions for home mortgage interest and charitable contributions are usually spared.