Tax expert weighs in on candidate proposals.
Donald Trump and other Republican presidential candidates have unveiled proposals to revamp the federal tax code. The Tax Foundation, a leading Washington, D.C., think tank, has analyzed those proposals. Though nonpartisan, the foundation is conservative. However, it has drawn Trump’s ire for projecting that his proposal would add $10 trillion to federal budget deficits over the next decade. The foundation’s president, Scott Hodge, defended that projection in a recent interview with us, and touched on the foundation’s analyses of other plans. Excerpts of that interview follow. A longer version is online at OrlandoSentinel.com/opinion.
Q: Trump has disputed the foundation’s conclusion that his tax plan would increase the deficit by more than $10 trillion. How did the foundation come up with that number?
A: Throughout the presidential campaign, Tax Foundation economists have been using our Taxes and Growth Macroeconomic Model to measure how each of the announced tax plans will impact key economic factors — such as GDP, investment, wages and jobs — as well as the plan’s effect on individual taxpayers and federal tax revenues.
When we input all of Trump’s proposed changes to tax rates, tax brackets and tax deductions into the model and compare it to current law, we find that the plan is a massive tax cut for both individuals and businesses. Measured conventionally, it would increase federal deficits by $12 trillion over 10 years.
However, Trump’s plan would also boost the long-term level of GDP by 11.5 percent, capital investment by 29 percent and wages by 6.5 percent, and create 5.3 million jobs. After adjusting for any new tax revenues generated by this added economic growth, the plan would add $10 trillion to deficits over the next 10 years.
Q: Jeb Bush’s plan has a much more modest impact on the deficit of $1.6 trillion. What’s different about his plan?
A: The effect of Bush’s plan on the deficit is certainly modest by comparison to Trump’s, but our model finds that it would still boost the level of long-term GDP by more than 10 percent, or about 1 percent per year over the next decade. One of the main ways it achieves that is by cutting the corporate tax rate to 20 percent and moving to full expensing for business investments. Our model shows that these measures would boost investment significantly across the economy, which ultimately would lift wages for all workers by more than 7 percent and create 2.7 million jobs.
Q: Marco Rubio has a plan. What are its most notable elements?
A: Our model shows that Rubio’s plan would produce the most economic growth of all the plans that we have analyzed, lifting the level of GDP by 15 percent over a decade. By being the first candidate to release a fully developed plan, I honestly think Rubio set the benchmark for the other Republican candidates and challenged them to craft plans that are as comprehensive and as pro-growth as his. I can’t think of another time in history where we have seen so many presidential candidates put forward comprehensive tax-reform plans.
Q: Rand Paul may be the strongest believer in limited government among the GOP candidates, but his tax plan has the least impact on the deficit — less than $1 trillion. How come?
A: Rand Paul’s tax plan may be one of the more “radical” of the presidential tax plans in that it replaces all of the individual tax brackets with a single rate of 14.5 percent, and it replaces the corporate income tax and payroll taxes with a new “Business Activity Tax” of 14.5 percent. This new BAT is similar to the Value Added Taxes that we see in other countries and can raise a significant amount of tax revenue.