Economy

Jeb Bush’s Tax Plan Is Mostly A Giveaway To The Rich

CREDIT: AP Photo/Jim Cole

In a speech on Wednesday, Republican presidential candidate Jeb Bush will unveil his tax plan. He also previewed the plan in an op-ed for the Wall Street Journal Tuesday evening. While the plan is still just an outline of what Bush would do and therefore doesn’t include many details, many of the changes he wants to make would benefit the wealthiest Americans.

Giveaways to corporations
Bush proposes lowering the corporate tax rate, currently 35 percent on paper, to 20 percent. As Bush himself notes, that is lower than China’s corporate tax rate. It’s also lower than what House Republicans have proposed and even lower than what Mitt Romney proposed when he ran for president.

But while the corporate tax rate is currently higher than what Bush proposes, that doesn’t mean that’s what corporations actually pay. The effective rate for the biggest companies is actually under 20 percent thanks to loopholes, tax breaks, and accounting schemes, while many pay nothing at all. Further lowering rates isn’t likely to improve the economy, either. An analysis by the Economic Policy Institute found no evidence that high corporate tax rates hurt economic growth; by contrast, corporate profits continue to hit record highs under the current regime. In fact, the corporations that pay the highest effective tax rates create more jobs than those that duck taxes.

At the same time, Bush proposes a so-called tax repatriation holiday, which would levy a one-time tax of 8.75 percent on profits that American corporations have sitting overseas in order to entice them to invest that money in the U.S. But such a plan was tried before, in 2004, and it was ineffective: The companies largely returned the money from that holiday to shareholders, rather than putting it into investments like hiring or equipment, and many ended up laying off large numbers of workers. The Congressional Joint Committee on Taxation has estimated that a second holiday would cost $96 billion over ten years.

Lower tax rates, including for the rich
Bush says he wants to simplify the tax code and would do it in part by cutting the number of tax brackets from the current seven down to three: 28 percent, 25 percent, and 10 percent. Right now, the top rate is 39.6 percent, so his plan would reduce that by nearly a third. Bush says that 28 percent top rate would return it to where it was after President Reagan’s 1986 tax cuts.

Bush’s tax proposal aims to spur economic growth to 4 percent a year. But lower taxes won’t necessarily do the trick. Post-war American growth has generally been higher during periods when the top marginal tax rate was also higher and lower when tax rates were substantially lower. In the 1950s, when the top rate was more than 90 percent, growth averaged more than Bush’s 4 percent annual target. But in recent years, with the top rate closer to 35 percent, growth has averaged at less than 2 percent a year.

Tax breaks for the wealthiest
Bush would end the estate tax, or what he calls the “death tax.” The estate tax affects money passed down through wealthy families and only applies to the very richest: just the wealthiest 0.14 percent of Americans pay any estate tax. The rate has been dramatically lowered over recent decades and thresholds were raised so that it applies to far fewer families than it used to. Many rich families have found creative ways to avoid paying the tax; the effective rate for those who owe the tax is 16.6 percent. While nearly $60 trillion will be transferred to heirs and charities over the next 55 years, less than 10 percent of it will go to estate taxes.

Even so, the estate tax is a relatively large source of revenue for the government: it’s expected to generate $246 billion between 2016 and 2025. It is also one of the most progressive elements of the American tax code, since it affects those most able to pay and helps fund programs the rest of us rely on. As the Center on Budget and Policy Priorities warns, “If the estate tax were further weakened or repealed, other taxpayers would have to foot the bill for these programs, face cuts in the benefits and services provided, or bear the burden of a higher national debt.”

Bush’s plan would also cut tax rates on capital gains income and dividends to 20 percent, although it would close a loophole that allows some, like hedge fund and private equity managers, to claim the lower capital gains rate on they money they make at their jobs. Capital gains, or investment returns, are subject to a top tax rate of 23.8 percent, compared to the top 39.6 percent rate on income. The benefit of that lower rate flows almost entirely to the wealthy: nearly 70 percent of the money saved in lower taxes goes to the top 1 percent of income earners, while just 7 percent goes to the bottom 80 percent. Economists have called this lower tax rate “by far” the greatest contributor to the growth in income inequality.

Bush’s plan has some more progressive elements. It nearly doubles the standard deduction that filers can take and expands the Earned Income Tax Credit, which, while just about $3,000 on average for each family, lifts about 6.5 million people out of poverty. He says his reforms will mean that about 15 million people don’t owe any income taxes, which would mostly be the lowest-income Americans. He wants to eliminate the marriage penalty, which penalizes many couples where both genders earn equal amounts, although doesn’t say how he would do it. And he would cap deductions for high earners.

While there are no analyses of exactly how Bush’s plan would play out, it appears to give far more to the well off than to those who most need relief. Bush cites his experience as governor of Florida as proof that the tax cuts will be good for growth. He enacted about $13 billion in tax cuts, most of which benefitted the richest in the state. Today, Florida has one of the fastest growing gaps between the rich and poor.