As you know, Jeb Bush delivered a comprehensive tax reform proposal in a speech in North Carolina and op-Ed in the Wall Street Journal yesterday. The headline provisions may be familiar by now and they will likely help raise and frame the debate on tax and related issues for the much of the campaign
Bush’s plan would:
• cut individual rates from seven brackets to three, taxing income at 28 percent, 25 percent and 10 percent — which he says would move 15 million Americans off the tax rolls.
• cut the corporate tax rate from 35 percent to 20 percent — a lower rate than the House GOP proposed this year and Romney ran on in 2012
• limit itemized deductions sharply, capping them at two percent of AGI, exempting the charitable deduction as well as employer-sponsored health insurance and the Child Tax Credits, but applying to the mortgage-interest deduction (yes, you read correctly). That is a fiscal pot of gold — $54 billion a year, $46 billion of which would come from capping the mortgage deduction.
• eliminate the deduction for state and local taxes entirely — another big ticket item currently projected to cost the federal government $1.1 trillion from 2014 to 2023
• abolish the AMT and the estate tax and make marriage more beneficial for tax purposes
• double the standard tax deduction that most filers take
• end the system of worldwide taxation that Bush blamed for the trend of corporate “inversions” and provide a one-time 8.75 percent holiday raye for repatriated profits (the Congressional Joint Committee on Taxation has estimated that such a holiday would cost upward of $50 billion over ten years)
• end the taxation of carried interest as fund manager compensation at capital gains rate (which just about puts that durable loophole on political life support)
Economists who do not apply dynamic scoring methods to fiscal projections are estimating a price tag of $3.4 trillion over ten years for the plan, more than twice the cost of his brother’s 2001 tax cut package. Jeb says the tax cuts would cost $1.2 trillion net over ten years and attributes the $2.2 trillion in new revenue over the decade to the supply-side stimulus growth effects of the plan — an attribution some might question.
If his plan is familiar, it should be. Bush, like Romney in 2012, wants to cut the top rate to 28 percent, from 39.6 percent. Romney sought to cut the corporate rate to 25 percent, and now Bush wants to cut it to 20. Romney proposed ending the estate tax and the ATM as well. Both plans proposed to limit tax deductions for the highest earners as a way of reducing their gains from tax cuts, partially mitigating the effects on the federal budget deficit.
The proposed deduction cap is a surprising, perhaps even a welcome addition to the broader deficit reduction debate. Opponents may seize on the cap and the closing of the state and local tax deduction as tax increases — at over $150 billon in new revenues a year, they could be tempting targets. And a certain real estate mogul might have something to say about capping the mortgage interest deduction.
But aside from the carried interest provision, an increase for EITC, and the deductions cap, little in the proposal challenges longstanding GOP tax policy orthodoxy. And It is not clear how the plan could get economic growth anywhere near Jeb’s ambitious goal of four percent a year. Post-war American growth has generally been faster during periods when the top marginal tax rate was also higher and lower when tax rates were substantially lower.