The tax plan proposed by Republican presidential candidate Newt Gingrich would add $1.3 trillion to the U.S. budget deficit in 2015 alone, a new analysis shows, complicating his goal of balancing the government’s books.
The analysis by the nonpartisan Tax Policy Center compares the federal government’s take under Gingrich’s proposal with projected U.S. revenue if current tax law ran its course and existing income tax cuts expired as scheduled after 2012.
The study found that Gingrich’s plan to lower the top individual rate to 15 percent and eliminate taxes on capital gains and estates would push federal revenue for 2015 below the government’s fiscal 2011 collections as a share of the economy. Federal revenue is near postwar lows because of the economic downturn.
“It blows a huge hole in the deficit,” said Roberton Williams, a senior fellow at the center, which released the report yesterday in Washington.
The Congressional Budget Office estimates that the government will collect $3.7 trillion in 2015, meaning that Gingrich’s tax plan would result in a 35 percent cut in federal revenue and a $1.5 trillion deficit, assuming no additional spending cuts or economic growth spurred by the tax cuts.
Gingrich’s plan would leave enough money to cover the cost of so-called mandatory spending, a category that includes Medicare, Medicaid and Social Security, along with part of the interest on the U.S. debt. Dedicating the money for those purposes wouldn’t leave any funds for defense spending or any other federal agency.
Counting on Growth
R.C. Hammond, a Gingrich spokesman, said the candidate’s plan will spur the type of economic growth that creates jobs.
“The more people working, the more revenue being generated, a scenario not accounted for by the Tax Policy Center,” Hammond said in an e-mailed statement yesterday.
Gingrich’s plan would create an optional 15 percent flat tax with a per-person deduction of $12,000. He would drop the corporate tax rate to 12.5 percent from 35 percent and allow businesses to write off capital expenses. Gingrich also proposes removing the tax increases enacted in the 2010 health-care law and eliminating levies on capital gains and estates, according to his website.
Gingrich said his plan would lead to economic expansion.
“It starts very simply -- taxes, lower taxes, less regulation, an American energy plan, and actually be positive about people who create jobs,” he said during a Dec. 10 debate in Des Moines, Iowa, where he outlined his proposals on corporate, estate and capital gains taxes. “Those steps would begin to dramatically create jobs.”
Under Gingrich’s plan, the analysis found, 70 percent of households would receive a tax cut, compared with what they’re paying now. The top 1 percent of taxpayers, who earn more than $629,809, would receive an average tax cut of $343,993 in 2015. That change would boost their after-tax income by 25.5 percent and put their average federal tax rate at 12.8 percent. The top 0.1 percent, or households with incomes exceeding $2.9 million, would get an average tax cut of $1.9 million.
Gingrich’s plan would cut taxes for people in all income groups and raise them for no one. For households earning between $50,000 and $75,000 a year, 91.3 percent would receive tax cuts averaging $1,847, boosting their after-tax income by 3.1 percent. Among the 20 percent of households earning less than $19,342 a year, many don’t pay income taxes or have income tax credits that outweigh their payroll taxes. Under Gingrich’s plan, 26.9 percent of those households would receive a tax cut and their average federal tax rate would drop to 1.4 percent.
Leading in Polls
Gingrich, 68, the former speaker of the U.S. House of Representatives, is leading the 2012 Republican presidential field in some national polls.
His campaign declined to provide details on assumptions underlying the tax plan to the Tax Policy Center. Using Gingrich’s statements, the center assumed that Gingrich would continue deductions for mortgage interest and charitable contributions along with existing corporate tax breaks and tax credits for children and low-income workers.
The calculations yield slightly different results if all taxpayers were to face the 15 percent flat tax as opposed to choosing each year between the two tax systems.
Adam Geller, a Republican pollster in New York, said the desire for a quick fix to the country’s economic woes could benefit Gingrich.
“Most of the Republican base is so frustrated with what we would term Obamanomics, or big government spending, that a push from the other direction that sounds like it’s of equal force sounds mightily appealing,” he said.
The Republican candidates are competing to offer politically attractive proposals, said Marc Goldwein, policy director for the Committee for a Responsible Federal Budget, a bipartisan group that advocates for budget discipline, and a former aide to the deficit-reduction supercommittee.
“Unless there are spending cuts to more than match those, there will be an increase in the debt,” he said. “We’re not going to be able to afford a huge, new unpaid-for tax cut. It’s just not in the cards until we deal with this debt situation.”
Gingrich’s main rival for the Republican nomination, former Massachusetts Governor Mitt Romney, has proposed extending current tax rates, cutting the corporate rate to 25 percent and eliminating taxes on investment income for households earning less than $200,000 a year.
Texas Governor Rick Perry has proposed an optional 20 percent flat tax that would deny some deductions for households with annual incomes exceeding $500,000. The Tax Policy Center found that Perry’s plan would cut revenue by 27 percent in 2015.
President Barack Obama proposes to allow the Bush-era income tax cuts to expire only for individuals earning more than $200,000 and married couples earning more than $250,000. He would raise the top tax rates for capital gains, dividends and estates.