GOP Tax Plans Differ, but Philosophy Same
Each Republican presidential candidate wants to restructure the federal tax system, but reviews of their plans, including one by a conservative-leaning group, generally agree on one point: Read the fine print.
A few of the plans are incomplete, and groups like the Tax Institute at H&R Block have skipped reviewing some of them until the candidates make more details public.
Other plans, most notably Herman Cain’s 9-9-9 plan, are quick and easy for voters to grasp, but Cain’s plan would cost most American families an additional $2,375 to $5,038 a year in taxes, while saving the wealthiest households up to $185,000, according to the Tax Institute’s review.
“That surprises me,” said farmer and retired factory maintenance worker John Martin, 65, of Imogene, whose cursory review of the plan led him to believe he would pay less.
Nonetheless, even if that statistic of a probable tax increase applies to Martin, he said he continues to support the former Godfather’s Pizza CEO.
“I like Herman Cain,” Martin said. “He’s a pretty straight shooter, and he’s not a politician. He’s a businessman.”
The proposals from GOP candidates range from eliminating corporate income taxes, estate taxes and taxes on inheritances to completely scrapping the current system and going with Cain’s plan for a flat 9 percent tax on individuals and businesses in addition to a new 9 percent national sales tax.
Generally speaking, lower-income families would pay more in taxes under plans proposed by the Republican candidates, the Tax Institute found, and the highest-income Americans would pay less. Another review, from the Tax Policy Center, a group based in Washington, D.C., that bills itself as a nonpartisan economic research institute, made a similar conclusion about Cain’s plan.
“Whether people understand this or not … the Republican candidates have, through their rhetoric, been able to convince generally lower-income people that these plans that do by and large benefit the wealthy are good for them,” said John Solow, an economics professor at the University of Iowa.
Tax plans reflect party differences
The tax plans put forth by the GOP presidential candidates and incumbent Democratic President Barack Obama reflect the two parties’ differing philosophies toward taxation.
The Republican candidates uniformly call for lower taxes and flatter, if not flat, rates. The GOP candidates equate lower taxation with greater individual liberty and with more incentive for businesses to create jobs. To balance the budget, they favor dramatic cuts in spending.
Obama has proposed narrower, more targeted tax cuts in an effort to stimulate job creation, such as eliminating payroll taxes for firms that add new workers or increase the wages of their current workers.
Democrats, like Republicans, generally say they want taxes to be as low as possible. To address the nation’s long-term deficits, Obama wants to apply brakes to spending increases. But he also thinks the wealthiest Americans should be asked to pay more in taxes.
Obama in September called for observance of the so-called Buffett Rule, named after billionaire investor Warren Buffett of Omaha, who has said it’s not right that he pays a lower effective tax rate than his secretary does.
The rule, as described by the Office of Management and Budget: “People making more than $1 million a year should not pay a smaller share of their income in taxes than middle-class families pay.”
Obama pitched the Buffett Rule as part of overall reforms to increase the progressivity of the tax code: As incomes rise, so would tax rates.
Conservative group favors flat tax
In contrast, conservative-leaning groups such as Americans for Tax Reform, which as a principle oppose all tax increases, say a flat tax is the right track to fiscal reform.
Flat taxes make it more difficult for politicians to pick and choose tax winners, the organization says.
The group, based in Washington, D.C., sponsors the annual “Cost of Government Day” and has developed an online guide that compares the tax plans of each presidential candidate.
Ryan Ellis, the group’s tax policy director, said he personally ranks Newt Gingrich’s and Rick Perry’s tax plans near the top, and Cain’s 9-9-9 plan near the bottom.
Ellis associates Cain’s proposal to introduce a new 9 percent national sales tax with the European value-added tax, which he said has spun out of control in recent years as politicians have exempted some items and raised the overall rate on others. That has created massive inequities, he said.
Both Gingrich and Perry have proposed an optional flat tax, which would let people choose between paying a flat rate or using the current system, which allows for deductions on taxes of expenses such as mortgage interest. Gingrich’s flat tax would be 15 percent, and Perry’s 20 percent.
Offering a choice might appear attractive at first blush, but Kathy Pickering, executive director of the Tax Institute, warned that such proposals would create additional headaches for taxpayers because they would essentially have to calculate their taxes two ways to see which would be most advantageous.
That runs counter to the political rhetoric of both parties that advocates for a more straightforward approach.
Views differ over impact on revenue
Each plan also would affect the money available for government spending.
The Tax Policy Center’s review of Perry’s proposal, allowing the option of a 20 percent flat rate, found the change would cost $995 billion a year in lost federal tax revenue.
Perry would address that shortfall in part by proposing to eliminate the federal energy, education and commerce departments, but their elimination would save less than $120 billion.
Those departments perform such duties as inspecting nuclear weapons and monitoring storage of nuclear waste, ensuring students have equal access to education and working to help the U.S. remain innovative and competitive in the global marketplace.
Solow, the U of I economics professor, cautioned that it’s difficult to calculate how tax changes could affect economic behaviors.
Lower rates would decrease tax revenue available for government spending. However, several candidates, including Michele Bachmann, Jon Huntsman and Cain, claim their plans would be revenue neutral in the long run because the tax cuts would spur economic activity, which would in turn increase tax collections.
Recent history calls those claims into question, however. FactCheck.org, a nonpartisan project of the Annenberg Public Policy Center, notes that federal revenues declined for three straight years after then-President George W. Bush signed his first tax cut in 2001.
Ellis, of Americans for Tax Reform, believes that in the end the GOP candidates’ plans, except for Cain’s, would end up collecting about the same amount of revenue.
The real difference is proposed redistribution of who pays what, he said.
“People can try to play with the numbers any way they want, but what you’ll find is that any of these systems with the exception of 9-9-9, which is a fundamentally different structure, will yield about the same amount of tax revenue,” Ellis said. “That’s Obama. That’s Romney. That’s everybody.”
Advice to voters: Look at your return
Even tax experts who have reviewed the plans urged caution regarding the accuracy of predicting individual or national impacts at this point. Pickering, head of the Tax Institute, said several of the candidates have not yet specified how they would handle some tax deductions and credits.
“Everything needs to be taken with an eye toward this is still pretty early on each candidate’s articulation of their tax platform,” Pickering said. “It might sound good in a media clip, but it’s very hard to take that to your specific situation and really understand how it’s going to impact.”
Ellis’ final advice: Don’t take campaign rhetoric as gospel.
“Get your hands dirty and read the plans,” Ellis advised voters. “Then take out your tax return and see what system you would like to live under.”