Liddick: A taxpayer’s guide to the presidential primaries (column)
On your right
Now that the W-2s and 1099s are falling like the snow on I-70 – with much the same effect on life and mental health – it’s time to look at what some potential presidential candidates are saying about the whole sordid process of income taxes in America.
To begin, a few rules of reality. First, “free” isn’t. “Free” is shorthand for “I’ll make someone else pay for what you’ll get.” Taxes are the vehicle for this. Second, what one taxes, shrinks. What one subsidizes, grows. Wealth and poverty are not exempt. Third, a complex tax code is the Devil’s playground for cronyism, influence peddling, favoritism, vote-buying and other corruptions. In 2015, the Federal Tax Code, regulations, legal precedents and commentaries was 78,608 pages and tax authorities, to paraphrase Jacob Marley, “have labored on it since.” Even the IRS admits that if “tax compliance” was an industry, it would be one of the nation’s largest, with over 3.8 million workers, most of whom make over minimum wage.
With that as a background, what do the men (and women) who would be president propose about the problem?
On individual income taxes, Hillary wants a 4 percent additional surtax on incomes over $5 million. The seven present tax brackets remain. Marco Rubio would telescope the brackets to three, at 10, 25 and 35 percent — the last for singles with income over $50,000; double that for married filers. Bernie Sanders says only “They’ll go up.” Current thinking is to 52 percent on regular income, with a 2.2 percent surtax on everyone for health care. Ted Cruz has proposed a flat tax of 10 percent on all individual income.
On capital gains, Hillary Clinton proposes raising the rate from 20 percent to between 24 and 39.5% for “medium term capital gains” held up to six years. Marco Rubio proposes zero percent. Sanders weighs in with a proposal to tax capital gains as ordinary income, with an additional tax of unspecified size on “financial transactions.” Ted Cruz, too, advocates charging capital gains as regular income — which would be taxed at 10—, roughly halving the current rate.
Clinton offers no real specific on corporate income taxes. Rubio calls for a 25 — across-the-board rate. Bernie Sanders is hard to pin down; many of his websites say corporations will pay “substantially more.” Ted Cruz proposes replacing corporate income tax with a “Business Transfer Tax,” which is a subtraction-method Value Added Tax.
On the last, which has generated a great deal of heat but little light among people who should know better. From the Right, criticism has been that, once established, such a VAT would not guarantee a future return to an additional corporate income taxes by a revenue-hungry government. True, but also true for any change to the tax code; no reason not to try something new. The Left complains that customers will ultimately pay the tax. This criticism seems more compassionate to those ignorant of basic economics. A corporation doesn’t pay taxes; it collects them from its sole source of revenue: customers.
Hillary proposes raising the “death tax” to 45 percent and lowering the threshold of excludability to $3.5 million. Marco Rubio and Ted Cruz would eliminate the tax altogether. Senator Sanders would raise the rate to at least 65 percent, probably more like 97 percent, and would lower the threshold to $3.5 million.
There are other details: Cruz and Rubio would substantially raise standard deductions and eliminate some — most in the former case — itemized deductions. Like the Beatles’ eponymous “Taxman,” Sanders proposes small taxes on almost every economic behavior. An interested person could look them up – just be certain that, when it comes to scoring, you check the methodology. Anyone who insists that doubling the tax rate won’t result in people behaving differently is phoning it in from Planet 10.
Based on dynamic modeling, Bernie Sanders’ taxation plans would probably mean a reduction in wealth for many Americans. It would probably also reduce GDP over ten years – estimates range from 1 to 9 percent. Hillary Clinton’s plans are harder to measure owing to their slipperiness, but they would also reduce both after-tax incomes and GDP by a small amount. Marco Rubio’s proposals would make for modest gains, assuming Congress finally bestirs itself to undertake spending reforms to deal with the probability of increased deficits. Ted Cruz’s plan, being the most radical, is harder to score. Because he essentially grafts the income tax code of the early 20th century onto a modern economy, there are unknowns. But his point about making a tax return something one could file on a postcard is very appealing.
It comes down to what we want: more “free” stuff or more investment and industry? More favoritism or more competition? More rules and regulations, or more freedom? 3,321 IRS forms or a postcard? We have a chance to choose. Make the best of it.
Morgan Liddick writes a weekly column for the Summit Daily News.
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