Jeb Bush Updates Romney’s Tax Plan With Populist, Supply-Side TwistsRichard Rubin
Jeb Bush’s tax plan attempts to fuse disparate streams of Republican thinking on U.S. fiscal policy, moving beyond the base-broadening, rate-lowering mantra that has animated the party.
The plan would be a $3.4 trillion tax cut over a decade, reducing federal revenue by about 8 percent. That’s according to an estimate prepared by four economists, including Glenn Hubbard, one of Bush’s top advisers. They expect the plan and forthcoming regulatory proposals to generate enough economic growth to cover about 65 percent of the costs, leaving a net revenue loss of $1.2 trillion.
In his proposal, Bush emphasizes ending income tax liability for millions of low-income households, taxing carried interest as ordinary income and letting businesses write off expenses immediately. These are all planks that haven’t been Republican priorities in past presidential campaigns.
“This plan moves money out of the hands of politicians in Washington, D.C., and gives it back to hard-working Americans like you,” Bush said Wednesday at a company in Garner, North Carolina, that makes cooling equipment.
The former Florida governor’s proposal incorporates some of the populism of Donald Trump and some of the pro-family ideas embraced by Marco Rubio without being as provocative as either of those fellow presidential contenders.
Bush has said he wants to reduce the budget deficit, but not by raising taxes. Instead, he’s proposing a combination of immigration, regulatory and education policies that he says would spur economic growth at levels the U.S. rarely achieves.
Based on details of the plan that the campaign released Wednesday, the result is a significant tax cut for individuals and businesses. Democrats are already warning that it would mean huge tax reductions for the wealthiest households.
Bush would apply the top tax rate of 28 percent to income exceeding $163,800 for married couples, compared with the $464,850 start of the 39.6 percent bracket under current law. That move would put doctors, mid-level executives and members of Congress in the same tax bracket as hedge-fund managers and sports stars.
Lower-earning spouses in two-income households could file separately so that their income wouldn’t be taxed at their spouse’s higher marginal tax rates, a move that would remove a barrier for people entering the workforce.
The state and local tax deduction would be eliminated, hurting residents of high-tax states such as New York and presidential election swing states such as Colorado and Virginia. Bush’s plan also would repeal limits on on top earners’ personal exemptions and itemized deductions and reduce the top capital gains tax rate to 20 percent from 23.8 percent.
By itself, the tax plan would likely be a tax cut on average for people in all income groups, said Alan Viard, a resident scholar at the American Enterprise Institute, which favors smaller government.
Yet, he added, it wouldn’t spur the economic growth that Bush seeks if it’s deficit-financed, and the spending cuts that would be required to make up for the reduced revenue might fall disproportionately on middle-income households.
“There’s a lot to like in the plan, if you were to compare maybe to some other things that could bring in the same amount of revenue,” Viard said.
The economic effects of Bush’s tax plan would be “very substantial” and would raise average household income by at least 6 percent by 2025, according to the paper released by the campaign.
The paper said the existing federal budget “should not be sacrosanct” and cited entitlement programs and the Affordable Care Act as places to save money.
The approach of 2012 Republican nominee Mitt Romney -- lower rates and fewer deductions -- is still at the core of the Bush plan. That’s little surprise given that Bush’s economic adviser, Glenn Hubbard, had the same role for Romney in 2012.
Both plans cut the top individual rate to 28 percent, cap itemized deductions, preserve the research tax credit and repeal the estate tax and the alternative minimum tax. By the end of his campaign, though, Romney’s tax plan became a liability as President Barack Obama warned that it could translate to a tax increase for middle-class Americans.
Yet what’s most fascinating about Bush’s plan is his departures from Romney and from the tax revamp proposed last year by Dave Camp of Michigan, then the chairman of the House Ways and Means Committee.
Romney and Camp set a 25 percent corporate income tax rate. Bush goes to 20 percent. That corporate rate is below the 28 percent top rate that would apply to closely held businesses that pay through their owners’ individual tax returns, creating a gap that Republicans have tried to avoid or minimize.
“It’s a tax on wages,” Bush said. “It’s a tax on people’s aspirations. It’s a tax on job creation.”
Camp, hemmed in by congressional scoring rules and his promise to offer a revenue-neutral plan, proposed lengthening depreciation schedules. Bush, in a nod to supply-side economists, plans to allow companies to write off capital expenses immediately.
He would pair that with the elimination of the tax deduction for interest payments, a move that “runs counter” to Bush’s goals for long-term growth, said the BUILD coalition, a group of businesses that include companies in real estate and finance and is dedicated to preserving the break.
“We need to move to a completely different direction,” Bush said on CNBC Wednesday. “Can you imagine a country that would have the lowest tax rate in the industrialized world and where you’re rewarding investing in a factory, 100 percent deduction, and you’re rewarding equity? You’re going to see an explosion of investment in this country. That’s what we need. And the Wall Street guys will do fine.”
Romney mused aloud about how 47 percent of people didn’t pay income taxes. Bush bragged in a Wall Street Journal op-ed piece published Tuesday that his plan would push 15 million people off of the income tax rolls. Bush is also proposing to double the earned income tax credit for childless workers and offer it to workers as young as 21.
“There’s an interesting consensus that seems to be developing among at least some of the people on the right that we need to do things to get disadvantaged young men involved in the workforce,” said Leonard Burman, a former Clinton administration official who is director of the Tax Policy Center in Washington.
Romney wasn’t specific about how his deduction cap would work. Bush is proposing to protect the deduction for charitable giving and then cap all other deductions at 2 percent of gross income.
That move would starkly limit the benefit of the mortgage interest deduction, and reduce the number of households that itemize deductions to 13 million from 47 million, according to the campaign.
So far, Bush is also avoiding some of the traps that ensnared Romney in the 2012 general election, as he tried to explain -- without ever providing full details -- that his tax plan would add up.
Romney and Camp both promised not to increase the U.S. budget deficit and not to shift the tax burden from high-income households to others.
Bush said on CNBC Wednesday that the rich would pay a greater share of taxes than they do now. He hasn’t said anything about how much his tax plan would cost.