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The (new) Bush tax cuts: $3.6 trillion

Updated

Pinned between a populist uprising led by Donald Trump, a wealthy donor base demanding lower taxes and a whole lot of family baggage, Republican presidential hopeful Jeb Bush debuted a new tax plan on Wednesday that seeks to satisfy all comers. The proposal includes something for everyone: new tax breaks for the rich, even bigger ones for corporations, a gentle poke at Wall Street and a variety of new goodies for middle-class and low-income taxpayers. 

The catch? Experts say some of the changes could dramatically explode the deficit. The conservative Tax Foundation estimated its price at a whopping $3.66 trillion over 10 years using traditional scoring methods and $1.6 trillion using dynamic scoring, which assumes conservative arguments that the cuts will unleash a surge of economic growth are correct. The gains would also be concentrated among the wealthy elite – the static score found that the richest 1% of Americans would enjoy an 11.6% gain in after-tax income, the richest 10% would get a 4.7% boost, and the bottom 80% would see a more modest bump between 1% and 3%. 

The top line numbers are largely in line with an analysis by economists John Cogan, Martin Feldstein, Glenn Hubbard and Kevin Warsh distributed by the Bush campaign that pegged its cost at $3.4 trillion under static scoring and $1.2 trillion under their dynamic model. A number of independent groups are currently working on estimates of their own. 

Under Bush’s proposal, the current tax system for individuals would be collapsed into just three brackets: 10%, 25% and 28%. The current code, after a tax hike on the wealthy under President Obama, consists of seven brackets with a top rate of 39.6%. The corporate tax rate would be dramatically lowered from 35% to 20% and allow companies to deduct capital investments. Bush would pay for the changes (at least in part) by eliminating and capping various deductions that taxpayers use to reduce their effective rates today. In some cases, he would limit deductions that disproportionately benefit wealthier individuals. The individual changes would cost $2.2 trillion, per the Tax Foundation, while the corporate changes would cost $1.1 trillion. The remaining $238 billion loss would come from eliminating the estate tax. 

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In crafting his plan, Bush seems to have incorporated lessons from previous Republican campaign tax pitches, most notably his brother George W. Bush and the previous Republican presidential nominee Mitt Romney.

Observers noted on Wednesday that the framework has a lot in common with Romney’s 2012 proposal, which also had a 28% top rate and reduced corporate taxes to 25%. That plan ended up being a millstone around Romney’s neck after the independent Tax Policy Center determined Romney’s policies would either violate his pledge to keep tax reform revenue neutral or his pledge not to raise taxes on the middle class. 

Unlike Romney, however, Bush hasn’t made any pledge to keep his tax plan revenue neutral, which gives him vast freedom to spread the wealth around. Bush indicated on CNBC Wednesday that he plans to factor into its cost an assumed bonanza of economic growth – he’s set a goal of 4% per year – that economists are highly skeptical would be achieved through the tax changes. Bush mocked the “bean counters in Washington” who instead favored traditional scoring methods used by Congress for decades to evaluate legislation.

“I struggle to see how this won’t add to the deficit when scored statically,” said Anthony Nitti, a tax partner at WithumSmith+Brown, who has been tracking candidate’s proposals.

This flexibility allows Bush to expand on Romney’s vision with new benefits that explicitly benefit middle-class and lower-income taxpayers, including an expansion of the standard deduction by $5,000 per person and a boost to the Earned Income Tax Credit to cover childless low-income workers (an idea Democrats have suggested as well). Ideas like these are likely to play well with so-called reform conservatives, a group of conservative intellectuals who have pushed party leaders to emphasize tax cuts that benefit the 99%.

One notable effect of these changes would be to add to the famous “47%” of Americans Romney identified during the 2012 campaign who pay no income taxes. This is a feature, not a bug: Bush boasts that his plan would eliminate taxes for some 15 million more Americans. 

“Bush is positioning himself as the anti-Romney by seeking to add to the number of taxpayers who don’t have a tax liability,” Nitti said.

As Nitti noted, though, this puts him at odds with conservatives who have used the “47%” line as a rallying cry to complain that too many Americans pay no taxes. Some on the right have advocated for an alternate taxation system in response based on a flat rate across all incomes or on taxing consumption, which would reduce the tax burden on the rich and spread it more evenly among Americans. 

This isn’t the only area where Bush breaks from Romney. He also joined GOP presidential front-runner Donald Trump in proposing to scrap the carried interest tax break, which benefits hedge fund managers. Democrats took Romney to task for refusing to call for an end to the loophole in 2012. The change gives Bush a hint of populist cover for his boast that his plan “works whether you’re on Main Street or Wall Street.

“It’s symbolically important because the anti-Wall Street crowd has made a big deal out of it, but in terms of actual revenue its pretty small: just $1 (billion) to $2 billion a year,” William Gale, co-director of the Tax Policy Center, told msnbc.

“You could argue the carried interest is a fig leaf compared to the broader tax cuts in the plan,” Matt Gardner, executive director of the Institute on Taxation and Economic Policy. 

As Romney learned the hard way, tax reform is extremely difficult terrain for any Republican candidate. To satisfy the party’s business wing, they need to propose substantially lower taxes for wealthy individuals and corporations. Doing so leaves them open to charges that they’re hosing the middle class to boost the ultra-rich, so there’s pressure to include goodies that benefit the average American as well. All of this gets very expensive very fast, which in turn forces candidates to choose between doling out generous tax cuts to everyone or blowing up the deficit.

In Bush’s case the added pressure is even greater: Raise taxes in any one area and rivals could invoke his father President George H.W. Bush’s infamous tax hike. Slash taxes without paying for them and tilt the gains toward the rich and Democrats will compare the plan to his brother’s budget-busting tax breaks.

Based on the available information, it’s the latter case that’s the relevant one. Like his brother, Bush’s plan tries to paper over class tensions by cutting taxes across the board. Bush counts some of his brother’s most prominent economic advisers as his own, including Hubbard (who offered the $3.4 trillion cost estimate), and his campaign boasted that the plan received a favorable review on Wednesday from Harvard economist Greg Mankiw, who chaired the Council of Economic Advisers under the last Bush administration.

Democrats are already signaling that they’ll try to link the siblings’ proposals. Both the Democratic National Committee and pro-Hillary Clinton organization Correct The Record emailed out an article by New York magazine’s Jonathan Chait calling the tax cuts “the same thing his brother did, only more extreme.” As Chait noted, the 28% top rate is significantly lower than the 35% under George W. Bush, and both Bushes favor eliminating the estate tax, which this year targets inheritances over $5.4 million. By contrast, Democrats have countered Republicans in recent years with plans that eliminate tax breaks for the rich in order to finance middle class cuts rather than cutting both. 

Jared Bernstein, former chief economist to Vice President Joe Biden, decried the plan as a “revenue-eating wolf in sheep’s clothing” that he warned would require draconian spending cuts elsewhere to finance. 

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“It’s got a lot of regressive features in it,” Gale said. “Repealing the Alternative Minimum Tax and the estate tax is regressive, cutting the top rate is regressive, cutting corporate rates is regressive.” 

One especially regressive idea Bush declined to embrace that other rivals have suggested is eliminating the capital gains tax, which overwhelmingly benefits wealthy investors. Instead, Bush would keep it at 20% while removing a 3.8% surcharge on high-income filers to pay for the Affordable Care Act. White House hopeful Sen. Marco Rubio, who has released the most detailed tax plan so far, would do away with capital gains taxes entirely, a change that would have reduced Romney’s tax bill to virtually nothing in certain years.

Like Bush, Rubio would expand some tax credits aimed at lower and middle-income taxpayers while reducing the top tax rate (in his case to 35%). Not coincidentally, Rubio’s plan is enormously expensive: the conservative Tax Foundation pegged its cost at over $400 billion a year using static scoring. The same group is currently working on an evaluation of Bush’s proposal.

Most of the field has yet to release detailed tax plans. In addition to Rubio, Sen. Rand Paul (R-Ky.) has put out a proposal based around a flat 14.5% tax rate, which the Tax Foundation has put its cost at $3 trillion over one decade using static scoring. Wisconsin Gov. Scott Walker has indicated he’ll release a plan next month.  

George W. Bush, Jeb Bush, Mitt Romney, Tax Policy and Tax Reform

The (new) Bush tax cuts: $3.6 trillion

Updated