If so, there is unlikely to be any theological crisis for Republicans anytime soon. All the GOP’s major 2016 candidates are expected to propose some reduction in taxes. But with tax cuts, perhaps even more than with other issues, the devil is in the details. What taxes do they proposed to cut and by how much? Are the cuts designed to increase economic growth? Are they accompanied by spending cuts, or will they increase the deficit? (No, not all tax cuts pay for themselves).
As with other issues, it is very early in the campaign, so we shouldn’t necessarily expect fully detailed plans yet. But we have more than enough clues to be able to discern the general outline of the candidates’ priorities.
As is the case with most issues, the two most detailed plans released so far belong to Senators Marco Rubio and Rand Paul. Rubio is the co-sponsor, with Senator Mike Lee, of the Economic Growth and Family Fairness Tax Reform Plan, which would reduce taxes by roughly $4 trillion over the next decade (on a static basis; dynamic scoring suggests the revenue loss would be somewhat less). The plan would reduce the number of tax brackets to just two, 15 and 35 percent, while eliminating nearly all itemized deductions and replacing the current standard deduction with a fully refundable personal credit, plus a new $2,500-per-child exemption. On the business side, the bill would reduce the corporate tax rate to 25 percent, again while eliminating most current deductions. It would, however, allow full deductibility for investments in the year in which they are expensed. It would also adopt a territorial tax system, exempting foreign income of U.S. corporations. The plan has been criticized by some supply-side and business-oriented economists for leaving marginal tax rates too high, and not being sufficiently growth-oriented. Rubio and others, notably reformicons, see it as a family-friendly and middle-class-oriented tax cut.
Rand Paul posted a detailed plan on his campaign website a couple of months ago, but he has since taken it down amid reports that he is revising it to lower rates even further. As originally posted, Paul’s plan would establish a 17 percent flat tax; however, he is reportedly working with Stephen Moore of the Heritage Foundation and others to bring that rate down to as low as 13 or 14 percent. The plan would also include a personal exemption, unlike most flat-tax plans, thereby lowering the effective tax rate still further. The size of the exemption was not spelled out, but according to some reports it could be as much as 20 percent. Capital gains, interest, and dividends would all be untaxed. The estate, gift, and alternative minimum taxes would all be eliminated. Paul also plans a payroll-tax exemption for low- and middle-income earners, though he has not provided details, and such a cut could complicate financing for Social Security. And Paul also proposes even larger tax cuts for high-poverty areas. Paul himself estimates that his plan would reduce revenue by about $700 billion per year, though he intends to propose spending cuts to offset the loss. Paul’s foreign policy came under attack recently as “Barack Obama’s third term,” but he certainly isn’t pursuing Obama’s tax policies.