All The Candidates Want Tax Reform, But What Kind?

Thursday, November 5th, 2015 @ 3:02PM

Gary D. Halbert

Between the Lines

All of the major contenders for the White House next year are proposing tax cuts or increases. All of the leading Republican candidates want to cut taxes in one way or another and eliminate some or all deductions. To no one’s surprise, Hillary Clinton and Bernie Sanders want to raise taxes. Hillary would raise the capital gains tax to 45% from 20%, and Bernie would boost the top income tax rate to 70% or more.

Among Republicans, Senator Ted Cruz was the latest to announce his tax cut plan last week. He would impose a 10% tax rate on all wage earners and a 16% business tax and no deductions.  Cruz believes his “flat tax” would jump-start the economy, and he may be right. In most cases over the last 100 years, lower taxes on income and investing have led to more jobs and higher incomes.

The Cruz plan is similar to that of Senator Rand Paul with a 14.5% flat tax and eliminates most deductions.  These and most other GOP tax reforms sound great on paper. The problem is, how do they pay for them? So far, they don’t – I’ll save that discussion, and it’s a serious one, for another day.

The bigger story here is that it’s now official: every major Republican candidate has endorsed lower tax rates and fewer loopholes as a way to make our federal tax code fairer and more competitive for American businesses. The spirit of tax reform is alive and well in the GOP.

Image1It’s too bad that tax reform fever isn’t bipartisan as it was in 1986 when by 97-3 the Senate passed the Reagan Tax Reform Act, which closed many loopholes and lowered tax rates by 15% for the middle class and 10% for the rich.

In the modern-day “progressive” Democratic Party, there is no room for a Bill Bradley or Dick Gephardt – two of the leading sponsors of tax reform in the 1980s. Even talking of lowering tax rates gets you excommunicated from the party of higher taxes and redistribution.

Hillary Clinton would apparently leave the income tax brackets where they are today but would more than double the capital gains rate to as much as 45%. Never mind that this would be devastating for the economy and jobs.

Bernie Sanders, the socialist Vermont senator who is drawing throngs of fans everywhere he goes (as if he were Justin Bieber), wants income tax rates back up to 70% or more. This sock-it-to-the-rich line is a big crowd pleaser, especially with young voters, and draws thunderous applause.

They both believe that it’s more important to reduce the gap between rich and poor than to stimulate the economy. But here’s the problem: soak-the-rich tax schemes rarely work.

Here’s an amazing statistic: the last time income tax rates were 70%, back in the 1970s, the government got only 19% of its revenues from the rich. Now with a lower top rate of about 40%, the government gets almost twice as much, or apprx. 36% of all income taxes, from the rich.

Meanwhile, the US corporate tax of 35% is now so much higher than the rest of the world that a Tax Foundation study recently concluded that we could raise just as much money with a rate of 20% to 25%. How so? Because more businesses would come here and start paying US taxes instead of Irish, Canadian, Chinese, etc.

If we can generate the same revenue at a lower tax rate and create more jobs at the same time, why wouldn’t we take that deal? The only answer is that the left gets some kind of satisfaction from knocking down the rich even if it benefits no one.

Many liberals believe that tax rates don’t matter much in terms of decisions about where businesses or jobs locate. They’re wrong! Just ask Governor Greg Abbot of Texas or Rick Scott of Florida – those two states have no state income tax at all. Both states are booming.

FYI, Texans overwhelmingly voted to reduce property taxes significantly in the election on Tuesday. That will make our state even more popular among corporations looking to relocate. No wonder Hillary isn’t very popular in the Lone Star State!

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