Republican Candidates Have Big Plans for Your Taxes

The United States tax code is a monstrosity that now exceeds a morbidly obese 70,000 pages. Politicians in Congress speak in platitudes about the need for its overhaul but turn away proposals. Year-long committee work led by House Ways and Means Chairman Dave Camp (R-MI) that resulted in a comprehensive tax overhaul plan disappeared as soon as introduced last year (“Blah, blah, blah” was House Speaker John Boehner's reaction). Despite all the talk, Congress has done nothing since the Tax Reform Act of 1984 of the Reagan years.

But evidently having a tax reform plan has become a prerequisite for the Republican nomination. One after another of the candidates has come forth with his (Carly Fiorina not yet) notion of how to rescue the nation from the code's thicket of brambles. It will come as a no surprise that all solutions result in tax cuts that can be dangled before the electorate, 48% of which consider tax reform a key issue (terrorism rules at 76%).

The flat tax, that hoary perennial that will not go away, has several standard bearers. Ted Cruz, Rand Paul, Rick Perry, Scott Walker, Ben Carson and John Kasich want today's seven brackets reduced to a single rate. Cruz exhumed the old enticement of tax returns so simple as to "fit on the back of postcard".

Rand Paul, always fun, took it much further in a Wall Street Journal op-ed titled, "Blow Up the Tax Code and Start Over". And he meant it. Out would go the 4 million words of the tax code and all its special interest loopholes. Replacing it would be a flat rate of 14.5% on incomes over $50,000 for a family of four and the same rate on business in the form of a value added tax. Of course, he doesn’t call it a VAT, because the invention comes from socialist Europe. Paul would do away with payroll taxes and use the income from the VAT to fund Social Security and Medicare instead.

The senator admits that of the face of it the government would be shy $2 trillion in revenue over 10 years, but he's made pilgrimage to Arthur Laffer in Nashville, who preaches that tax cuts spur growth that leads to higher tax income than before the cuts and who continues to believe that phenomenon might actually happen someday.

Dr. Ben Carson wants a flat tax, inspired by the Bible's tithe. When told the 10% to 15% he is thinking of must be higher to raise the revenue the government needs and that higher rates would therefore harm the poor, he responded that it’s “very condescending” to say that poor people can’t pay the same tax rate as the wealthy. “I can tell you that poor people have pride, too".

Mike Huckabee espouses the FairTax, which gets rid of both the income tax and payroll taxes entirely and replaces them with a 23% national sales tax charged on all goods and services other than the cost of necessities.

The premise of flat and fair is to treat everyone alike, irrespective of income. Compared to today's graduated scheme that increases the tax rate as income rises, a single rate applied to everyone, in the guise of simplification and "fairness", results in an enormous gift to the wealthiest among us. Top earners would see their nominal tax rates cut — using Rand Paul's specific 14.5% — by almost two-thirds from the top rate of 39.6% .

More than that, a flat tax is irredeemably regressive. For workers at the low end of the economic scale, all earnings are taxed, whether as income at the flat tax rate, or, in the Huckabee variation, because all earnings are unavoidably spent and subject to his tax built into the elevated cost of most everything they buy. Those at the high end of the income scale don't spend all their income, and that not spent is not taxed. Under these proposals, the rich get richer at a time of increasing concern that income inequality is tearing at the fabric of society.

Marco Rubio is taking heat for the plan he drew up with Mike Lee, Republican Senator from Utah. They would crunch today's graduated tax on income to just two rates: 15% and 35%. Singles would reach the 35% bracket with an income of just $75,000. For couples, income above $150,000 would be taxed at the 35%. Compare that to today's earner not reaching the slightly higher 39.6% top bracket until income crosses $464,851.

The high rate kicking in at low thresholds seems necessary to pay for the rest of the Rubio/Lee plan, which does away with all taxes on capital gains, dividends and estate inheritance — the rich need help — and gives parents a $2,500 deduction for every child. In what the The Wall Street Journal lambastes as "using the tax code for social policy", Rubio and Lee champion the child credit as literally an award to parents for "raising the next generation of taxpayers who will grow up to fund the Social Security and Medicare of all future seniors". Their plan would run up the national debt by $4 trillion over a decade. The Bush tax cuts "only" sunk us $1.5 trillion further in debt.

New Jersey Governor Chris Christie wants to return to the tax rates of the Reagan era, which, by the time Reagan left office, had been slashed to 15% and 28%. If he means that literally, he might need to test the math. Reagan's top rate kicked in at around $58,000, according to tables adjusted to today's dollars at the Tax Foundation (married, filing jointly). That won't win votes. Today, 28% doesn't start until one crosses $151,200.

Like others, Christie believes his plan would bring in the same amount of revenue by eliminating tax deductions and credits, although he speaks of them as only "up for negotiation". But the biggest — home mortgage interest and charity contributions — would be off limits for Christie (maybe not interest on second homes). Trouble is, there aren't enough deductions to pay for the drop in government income that the Reagan rates bring in.

It's odd that politicians are drawn to just two or three tax rates, as if today's seven are just too mindbogglingly complex. One speculates that they've never done their own taxes and having never dealt with the worksheets and the linguistic tangles ("if line 6 exceeds line 36 of form 1040, and line 6 is less than 0, then go to line 9 else"…and so forth) think that the simple brackets are the complexity the public loathes.

Ted Cruz wants to get rid of the IRS altogether; rather unfair considering that it is Congress that serves up the changes that special interests lobby for — 4,430 averaging 1-a-day in the new century's first decade — yet it is the IRS that takes the heat for the convoluted instructions they must devise.

But, of course, like street waifs passing a bakery, looking at the pastries through the window, that is as close as Republicans will get to their delectable schemes. Special interests will come by to remind Congress members of the campaign funding they'll lose if a pet exemption is removed and if one of these candidates reach the Oval Office, he will watch one confection after sold off to Congress' rich corporate patrons. But for the moment it's fun to look through the window.