Jeb Bush gets high marks for transparency
At first glance, GOP presidential hopeful Jeb聽聽is a standard lower-the-rates, broaden-the-base overhaul of the revenue code. But a closer look shows a something-for-everyone stew filled with interesting ingredients鈥攎ost basic GOP fare but seasoned with a few surprising ideas.
Bush, like fellow Floridian Marco Rubio, gets credit for putting out a serious and relatively specific plan. No gauzy promises of closing 鈥渓oopholes鈥� here. Rather, Bush has filled in many important details. It isn鈥檛 a 1,000-page bill but it gives voters plenty to chew over. For a campaign document, it is remarkably transparent.
It does not answer two big questions, however. Curiously, Bush never quite says whether he intends for his plan to cut taxes or raise the same amount of money as the current code. And he never really says whether his plan would maintain the progressivity of today鈥檚 law. While a background document released by the campaign shows how taxpayers of different incomes would fare, you should look carefully at his analysis. It picks and chooses specific examples, and looks only at non-itemizers, which excludes most high-income households.
My guess is that Bush鈥檚 proposal would cut taxes substantially and that the biggest beneficiaries would be low-income households (many of whom would drop off the income tax rolls) and the highest income taxpayers who鈥檇 enjoy most benefits of the across-the-board individual rate reductions, the business tax cuts, and repeal of the Alternative Minimum Tax and the estate tax. It is less clear how middle-income households would fare.
Bush promotes his plan as part of a package that would boost economic growth to a steady 4 percent 鈥揳-year. That鈥檚 implausible, given history and demographics. But this is a presidential campaign, after all.
On the individual side, Bush would collapse the current seven rates (with a top rate of 39.6 percent) to three rates, 28-25-10. He鈥檇 not only repeal the AMT and the estate tax but he鈥檇 (mostly) eliminate the marriage penalty and end the employee share of Social Security taxes for workers older than 67. He鈥檇 also dump the existing limits on itemized deductions (known as the Pease law) and personal exemptions (aka PEP) that hit high-income households while adding new limits on those tax preferences.
Bush would take millions of low-income households off the income tax rolls, mostly by increasing the standard deduction from today鈥檚 $12,600 to $22,600 for married couples and from $6,300 to $11,300 for singles and increasing the Earned Income Tax Credit for adults with no children.
Investors would pay a 20 percent rate on capital gains. However, he鈥檇 eliminate 鈥渟tep-up basis鈥� for the largest estates so that when heirs sell bequests their capital gains would be based on original cost, not value at the time of death (an idea his brother also proposed in 2001). And, he鈥檇 tax carried interest at ordinary rates.
He鈥檇 pay for some of his generous tax cuts by eliminating the deduction for state and local taxes and capping the value of most other deductions at two percent of Adjusted Gross Income. Much of the revenue from this provision would come from the mortgage interest deduction. The one exception from the deduction cap: Charitable gifts, which would continue to be fully deductible up to 50 percent of AGI. The聽leave another important question unresolved: Does Bush only mean to cap deductions? What about credits and exclusions? If you want to know more about this idea, take a look at聽听补苍诲听聽by my Tax Policy Center colleagues.
At the same time, Bush vows to cut the top corporate rate from 35 percent to 20 percent, while eliminating 鈥渕ost鈥� business tax breaks鈥攖hough he鈥檇 keep the research credit. He鈥檇 allow full expensing of investment in both equipment and structures while ending the deduction for interest costs, a big step towards a business-level consumption tax. He鈥檇 shift to a territorial tax system where the US, like most other countries, exempts its multinationals from tax on foreign-source income. However, he鈥檇 impose a one-time 8.75 percent transition tax on existing unrepatriated foreign income of US firms, payable over 10 years.
However, Bush says almost nothing about how his territorial tax plan would work and how he鈥檇 prevent multinationals from gaming the system.
Bush seems to be steering a middle course between hard-core supply siders who favor deep cuts in rates and elimination of all taxes on investment income despite the regressivity of such a model and competitors such as Rubio, who鈥檇 retain graduated rates and add聽. Bush鈥檚 top rate of 28 percent is higher than the supply siders want but lower than Rubio鈥檚 35 percent.
I still want to know more about Bush鈥檚 plan. But it is a serious and credible proposal that deserves lots of further discussion.
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