The voices of Tax Policy Center's researchers and staff
It is only April and we have heard presidential candidates propose some of the biggest and most ambitious tax plans in modern US history. Donald Trump is proposing the largest tax cut ever, and Ted Cruz is not far behind. Bernie Sanders has proposed the biggest tax increase since World War II.
But it isn’t just the size of the tax changes. We’ve already seen two forms of broad-based consumption taxes, a carbon tax, and two financial transactions taxes. In a typical presidential election season, any one of these would be a headline-grabber. This year, they have all been in play—though getting remarkably little attention.
Yesterday, I joined a group of tax experts to take stock of the candidate’s tax plans. At a Tax Policy Center panel, they described the most interesting tax ideas of the campaign so far. Some are good. Some are terrible. Some are, well, thought-provoking. Here are some of the best and worst tax ideas of the 2016 campaign, according to our panelists, Len Burman, Elaine Maag, and Joe Rosenberg of TPC and Adele Morris of the Brookings Institution. In no special order, they are:
A broad-based consumption tax. Ted Cruz has one (though he is loath to admit it). Marco Rubio had a better one. But the idea of taxing consumption more and income less made a lot of sense to most of our panelists. After all, if savings and investment are key to the nation’s economic future, why would you tax it so much? One problem with consumption taxes, even Rubio’s relatively progressive version, is that without adjustments they tax low-income households (who consume more of what they make) far more than high-income households. Elaine worried about whether any consumption tax could truly avoid that problem.
A carbon tax: Most economists love carbon taxes, and Sanders has one. They build some of the environmental cost of burning fossil fuels into the price, thus encouraging people to seek less costly and less environmentally damaging alternatives. Carbon taxes also generate lots of tax revenue that could be used for a range of goals—everything from reducing the corporate income tax rate to lowering individual taxes or helping out those who live in coal country. Adele noted that taxing carbon is a far more efficient way to tackle climate change than subsidizing alternative fuels.
A financial transactions tax. Sanders and Hillary Clinton have both proposed versions. Sanders’s plan is much broader than Clinton’s. He’d tax all sales of securities. She’d just tax flash trading--that computer-driven high-frequency trading that appears to do little to improve market efficiency. The Clinton plan is more likely to curb that practice than generate a lot of revenue. While Sanders argues his plan could raise as much as $300 billion, TPC calculates it would produce only a fraction of that amount since his high-rate tax would discourage trading.
Raising taxes on low-income households. This one falls in the category of really provocative. While Sanders would raise most of his new revenue from high-income households, everyone would, on average, pay more. Thus, he offers low- and moderate income households an explicit trade-off: higher taxes for more direct assistance. Hard to know if it is a good deal for them or not, though those already getting Medicaid may wonder if a taxes-for-health-benefits swap is worth it. One low-income issue that has generated a lot of interest on Capitol Hill but gotten little traction among the presidential hopefuls: expanding the Earned Income Tax Credit to include childless workers.
And now for the four worst ideas:
Quadrupling down on the Alternative Minimum Tax: The current AMT is terrible, so why would Hillary Clinton propose three more minimum taxes on top of it?
Abolishing the IRS: Cruz says he’d kill the agency, but replace it with, um, an office in the Treasury that would collect taxes.
Slash taxes on partnerships: Trump would set the top rate on individual income at 25 percent, but he’d tax partnerships, sole proprietorships, LLCs, and other pass-through firms at 15 percent. This windfall would encourage everyone who can to create their own little business.
Cutting taxes by nearly $10 trillion and not paying for it. Trump and Cruz both propose massive tax cuts and vow to balance the budget, but have offered only the vaguest idea of what spending they’d cut to make it happen.
Say what you want about this crop of presidential candidates, but you can’t criticize them for ignoring tax policy.
Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.
Trader Benedict Willis, left, works on the floor of the New York Stock Exchange, Wednesday, April 6, 2016. (AP Photo/Richard Drew)