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GOP's Tax Cutters Keep Their Options Open

Paula Dwyer writes editorials on economics, finance and politics for Bloomberg View. She was London bureau chief for Businessweek and Washington economics editor for the New York Times, and is a co-author of “Take on the Street: How to Fight for Your Financial Future.”
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It was a surprise to some analysts that Donald Trump's tax plan hewed more to Republican dogma and less to his wilder, populist side. Dylan Matthews at vox.com called it "an orthodox supply-side conservative tax plan in a middle-class tax cut's clothing."

He's right in the sense that Trump would drastically cut taxes by lowering the top individual rate to 25 percent from 39.6 percent, and on down the line. The biggest beneficiaries would be the richest 1 percent of households, since they pay the highest proportion of federal taxes now.

Trump would also trim levies on investment income, end estate taxation, lower corporate taxes and eliminate the alternative minimum tax, which makes sure well-off households with gobs of deductions don't escape altogether. All of this is pretty much in the Republican mainstream.

But something else is going on here, too. Looking across this year's raft of Republican tax plans, a quiet shift is taking place. Trump and Bush are calling for higher taxes on some of the rich. Bush's plan doesn't even pretend to be revenue-neutral, in which lost deductions for some and new credits for others would offset each other. Both candidates have refused to sign Grover Norquist's no-tax-increase pledge.

Marco Rubio's tax proposal would drop the top individual tax rate to 35 percent from 39.6 percent -- barely a blip by the standards of Republican stalwarts. Instead, Rubio wants to raise the child tax credit to $2,500 from $1,000, and give employers a 25 percent tax credit if they offer workers at least four weeks of paid family leave.

It's all a far cry from 2012 when Mitt Romney, the Republican nominee, complained in a private meeting about the 47 percent of people who paid no federal income tax and when the thematic backdrop was "makers versus takers." 

Not this time. Trump, Bush and Rubio seem to be trying to one-up the other in providing tax relief to lower-income households to address income inequality. Bush says his plan would lower rates so much that 15 million people would no longer have any tax liability. Trump goes further by claiming his lower rates would knock 31 million households off the tax rolls.

At the same time, Bush and Trump are proposing to do something that would have been heretical for Republicans only four years ago: Raise the tax bills for a small number of wealthy people by ending the carried-interest loophole that lets hedge-fund managers pay lower rates on performance fees. It wouldn't raise much money, possibly $20 billion over 10 years, but symbolically it's a big step for Republicans, especially since the targets include some generous campaign donors.

None of this means the blueprints of Trump, Bush and the rest clear the bar when it comes to equitable tax burdens. They are highly regressive by benefiting the richest Americans the most. They blow a huge hole in the federal budget, then rely on the magic of a sudden spurt of economic growth to offset revenue losses. The reality is that their math doesn't add up, but reality doesn't sell well on the campaign trail.

Still, the candidates free themselves, ever so slightly, from the handcuffs that have constrained Republicans for decades. Since Ronald Reagan's time in office, the mantra has been that taxes could only be slashed. And income inequality was ignored, or pegged as class warfare. This time is different.  

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Paula Dwyer at pdwyer11@bloomberg.net

To contact the editor responsible for this story:
Katy Roberts at kroberts29@bloomberg.net