Our guest blogger is Seth Hanlon, director of Fiscal Reform for the Doing What Works project at the Center for American Progress Action Fund.
2012 GOP presidential hopeful Jon Huntsman is releasing an economic plan today that is as bad for the middle-class — and as nutty — as any proposed by his rivals. It would pay for a half-million-dollar tax break for the richest 0.1 percent of Americans with tax increases on the middle-class and new taxes on seniors, veterans, and poor families.
In an apparent attempt to eclipse all previous Republican giveaways, including the disastrous Bush tax cuts, Huntsman would drop the marginal rate paid by the richest Americans by more than a third to 23 percent — a lower rate than rich people paid during the Coolidge and Hoover Administrations or any time since. He would also eliminate all taxes on all capital gains and dividend income — the primary forms of income for the wealthiest Americans.
Huntsman says he will pay for this supply-side bonanza by eliminating all so-called “tax expenditures.” He probably borrowed the idea from a theoretical scenario described by the President’s Commission on Fiscal Responsibility and Reform (aka, the deficit commission). The Commission observed that if all tax expenditures were eliminated, income tax rates could, in theory, be consolidated into three brackets: 8, 14, and 23 percent — the same as what Huntsman proposed today.
But the Commission only offered that scenario as a thought experiment, not as a serious proposal. In fact, no one has seriously proposed to eliminate all tax expenditures because doing so would punish seniors, the middle-class, poor families, and veterans, among others.
Huntsman either hasn’t thought through — or doesn’t want people to know — what eliminating all tax expenditures would actually mean. So let’s take a look at the official tax expenditure list and see what would happen if we got rid of all of them:
— All Social Security benefits would become taxable. Senior citizens that currently receive the average Social Security benefit as their primary income source (as is the case for most seniors) currently pay no income taxes on those benefits, but would under Huntsman’s plan.
— Many middle-class parents would lose child tax credits and tax benefits for education and child care that are more valuable to them than a tax rate cut.
— Huntsman’s tax plan would also eliminate the employer health insurance exclusion, which helps enable some 160 million Americans get coverage through their jobs.
— One of the most successful pro-work, anti-poverty initiatives, the Earned Income Tax Credit, would be abolished.
— Veterans pensions and disability benefits would become subject to tax, as would all military combat pay, military housing allowances and meals, workers compensation payments, public assistance benefits, and state foster care payments.
This is just a partial list of the harsh and/or bizarre consequences that would occur if all tax expenditures were eliminated to fund a huge giveaway to the very rich.
According to the nonpartisan Tax Policy Center, on the whole, middle-class families would be forced to pay $1,890 in higher taxes under the no-tax expenditure plan compared to what they pay now. They would even pay $738 more than what they would pay if all the Bush tax cuts expired. Meanwhile, because they benefit the most from the lower rates, the richest 1 percent would get a $7,000 tax cut under the no-tax expenditure plan compared to letting the Bush tax cuts expire. Edited to clarify the different baselines in use. Thanks @jbarro.
For the super-rich, the biggest bonanza comes from Huntsman’s pledge to eliminate all capital gains and dividend taxes — which would give the richest 1 percent an average tax cut of $75,000 and the richest 0.1 percent an average tax cut of $486,000.
In light of all this, maybe people should stop calling Huntsman the “serious” Republican candidate.