Rubio Tax Plan Would Cut Fed Revenue by $6.8 Trillion, Study Says -- Update
12 February 2016 - 7:30AM
Dow Jones News
By Richard Rubin
Republican presidential candidate Marco Rubio's tax plan would
reduce federal revenue by $6.8 trillion over the next decade and
deliver its biggest benefits to high-income households, according
to a new analysis.
The Florida senator's proposal, fleshed out over the past year,
would cut business-tax rates to 25%, let businesses write off
capital expenses immediately, add a $2,500-per-child tax credit for
individuals and eliminate taxes on capital gains, dividends and
estates. The result would remove about $1 of every $6 the
government is expected to collect, not including interest costs,
according to the Tax Policy Center. That would make it difficult if
not impossible for Mr. Rubio to meet his other goals of increasing
military spending and balancing the federal budget.
"If the numbers added up, this would be a radical and innovative
tax reform that would be worth taking seriously," said Len Burman,
the center's director.
Mr. Rubio's plan attempts to fuse two disparate threads of
Republican tax thinking. By offering the expanded child tax credit
and a refundable credit to replace the standard deduction and
personal exemption, he is aligning himself with so-called
"reformicons" who have been urging the party to focus on pro-family
policies. By ending capital-gains taxation and lowering marginal
tax rates on businesses, Mr. Rubio aligns himself with supply-side
economists.
In 2017, Mr. Rubio's proposal would give households an average
tax cut of $3,146 and increase after-tax income by 4.4%. Taxpayers
across the income spectrum would pay less to the government.
Those benefits aren't evenly spread, however. The top 1% of
households, which would otherwise pay 28.2% of federal taxes, would
get 33.8% of the tax cuts. The top 0.1% of households, which would
otherwise pay 13.5% of taxes, would get 19.8% of the tax cuts,
averaging more than $930,000.
For the top 1%, Mr. Rubio's plan would increase after-tax income
by 10.4%. The bottom 20% would get a 1.9% boost.
By lowering tax rates and allowing immediate write-offs of
capital expenses, Mr. Rubio's plans would make the effective tax
rate on new investment near zero, Mr. Burman said. But, he warned,
increasing federal deficits could lead to higher interest rates
that could offset those benefits.
The center's estimates also assume that the Internal Revenue
Service under Mr. Rubio would be able to police the boundaries
between wage income taxed at 35%, business income taxed at 25% and
capital gains that aren't taxed at all. Those differences, Mr.
Burman said, "could create giant tax-sheltering opportunities" for
people to recharacterize their income.
The Rubio campaign didn't respond Thursday to a request for
comment.
The center, a nonpartisan project of the Brookings Institution
and Urban Institute, used a bipartisan panel of reviewers for its
study. Mr. Burman was a tax-policy official in the Treasury
Department under President Bill Clinton. Mr. Rubio's campaign
didn't answer questions from the center, so the analysis included
assumptions about some details.
The center has already released analyses of the tax plans of
Republican candidates Donald Trump and Jeb Bush. A study of Ted
Cruz's plan is scheduled to be released next week, followed later
in February by analyses of the Democratic candidates, Hillary
Clinton and Bernie Sanders.
Write to Richard Rubin at richard.rubin@wsj.com
(END) Dow Jones Newswires
February 11, 2016 15:15 ET (20:15 GMT)
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