FEELING PLUCKED CLEAN BY TAX MAN? Iowa is doing its part to make sure mega-chicken corporation Tyson and three other profitable companies don’t feel that way by handing out a new round of tax credits.

The best way to help stimulate the economy is through tax reform. Tax policy is also a policy that every voter feels so where a candidate stands is of vital importance.  Voters should expect detail when it comes to tax policy, and now that we are almost three-and-a-half months out from the Iowa Caucus it would be helpful to look at where the field stands on this issue.

I want to first summarize each candidate’s plan and then share my thoughts after.

Jeb Bush

Former Florida Governor Jeb Bush’s plan establishes three individual income tax brackets instead of seven with rates of 10%, 25% and 28%.  The top rate applies to taxable income over $85,750 for single filers and $141,200 for joint filers.   His plan increases the standard deduction to $11,300 for single filers and $22,600 for joint filers.  He eliminates the “head of household” filing status.

Bush’s plan regarding individual income tax itemized deductions eliminates the state and local income tax deduction saying it favors taxpayers from states with higher taxes. His plan then would cap all remaining deductions, with the exception of charitable deduction, at 2% of adjusted gross income.  His plan eliminates the Pease limitation on itemized deductions.

Bush’s plan would double the earned income tax credit for childless filers, and expands it for filers between 21 and 24 who are not in college.

Bush would eliminate the alternative minimum tax. Bush eliminates the net investment income surtax, and taxes interest income at capital gains and dividend tax rates.  Those rates are lowered to 20%.

Jeb Bush lowers the top corporate rate to 20%.  Bush’s plan moves to full expensing of investment costs for companies.

In dealing with international income Bush would shift to a territorial tax system and would enact a deemed repatriation of foreign income at an 8.75% rate.

Bush’s plan calls for exempting workers over 67 years old from payroll taxes.  Bush would eliminate the estate tax and ends step-up basis in capital gains for estates.

Eliminates the deductibility of interest. Eliminates the personal exemption phase-out.  Allows second earners to file their tax returns separately. Taxes carried interest at ordinary income rates.

Ben Carson

Retired neurosurgeon Ben Carson has advocated for a flat tax of 10% to 15%.

Chris Christie

New Jersey Governor Chris Christie’s plan establishes three brackets.  The top rate would be 28% and the bottom rate would be 8%.  He doesn’t specify what he will do with the standard deduction or personal exemptions. Christie’s plan would eliminate all itemized deductions for individual income tax except for the charitable deduction and mortgage interest deduction.

Christie has said he would lower the top corporate rate to 25%.  Christie would enact a deemed repatriation of foreign income at an 8.75% rate.  Christie’s plan calls for eliminating the payroll tax for workers over 62 and under 25.  Christie’s plan also calls for making the research and development tax credit permanent.

Ted Cruz

U.S. Senator Ted Cruz (R-TX) calls for a flat rate, but the level is unspecified. Cruz has stated he would eliminate the estate tax.

Carly Fiorina

Former Hewlett Packard CEO Carly Fiorina hasn’t offered a specific plan yet, but has said that any tax reform must “lower every rate, close every loophole.”

Lindsey Graham

U.S. Senator Lindsey Graham (R-SC) advocates for a flat rate “in the high teens or low twenties.” Graham has said he would enact a deemed repatriation of foreign income at a rate around 10%.

Mike Huckabee

Former Arkansas Governor Mike Huckabee wants to eliminate the income tax with its deductions and credits altogether and replace it with a national sales tax.  The specific plan he advocates is called the Fair Tax which would tax new goods and services at a rate of 23%.  Families would receive monthly “prebates” which would offset the cost of the tax on essentials for lower income families.

This would also zeros out corporate income, payroll, estate and gift taxes as well.

Bobby Jindal

Louisiana Governor Bobby Jindal’s plan establishes three individual income tax brackets with rates of 2%, 10% and 25%.  The top rate applies to taxable income over $90,000 for single filers and $180,000 for joint filers.  His plan eliminates the standard deduction and personal exemption ensuring every wage earner pays some tax.  Jindal says everyone then would have “skin in the game” which could have an impact government spending.  Jindal eliminates the “head of household” filing status.

Jindal eliminates all individual income tax itemized deductions except for the charitable deduction and mortgage interest deduction.  It caps the mortgage interest deduction at $500,000 of interest payments. His plan also eliminates the Pease limitation on itemized deductions.

Jindal’s plan replaces the personal exemption with a nonrefundable credit for all dependents. The earned income tax credit is transferred to the payroll tax.  Jindal eliminates the alternative minimum tax.

Jindal taxes capital gains and dividends as ordinary income, and his plan eliminates the net investment income surtax.

Jindal’s tax reform plan eliminates the corporate income tax. Dealing with foreign income Jindal’s plan shifts to a territorial tax system and enacts a deemed repatriation of that income at a 8% rate.

Jindal’s plan eliminates the additional Medicare tax on compensation over $200,000.  Jindal would eliminate the estate tax.

Jindal’s plan also calls for tax-free savings accounts for up to $30,000 of savings per year.

John Kasich

Ohio Governor John Kasich has not offered a specific tax plan.

George Pataki

Former New York Governor George Pataki has not offered a specific tax for individuals and families.  He has said he would lower the top corporate rate to 24% and would lower the top rate on manufacturers to 12%.

Rand Paul

U.S. Senator Rand Paul (R-KY) would establish a flat rate of 14.5% on all ordinary income.  He increases the standard deduction to $15,000 per filer and increases the personal exemption to $5,000 per person.  He eliminates all itemized deductions except for the charitable deduction and mortgage interest deduction.

Paul’s plan eliminates all credits except for the income tax credit and child tax credits.  Paul would eliminate the alternative minimum tax.

Paul would lower the rate on capital gains and dividends income to 14.5%.

Paul’s plan would replace the corporate income tax with a 14.5% business transfer tax, which applies to all capital income and labor payments.  His plan also moves to full expensing of investment costs.  Paul would shift to a territorial tax system for foreign income.

Paul’s plan eliminates the payroll tax.  He would also eliminate the estate tax.

Marco Rubio

U.S. Senator Marco Rubio’s tax reform plan establishes two individual income tax brackets of 15% and 35%. The top rate applies to taxable income over $75,000 for single filers and $150,000 for joint filers.

Rubio’s plan eliminates all itemized deductions except the charitable deduction and the mortgage interest deduction at $300,000 of interest payments.

Rubio’s tax plan establishes an additional child credit of $2,500 that would be used to offset income and payroll taxes.  He would replace the standard deduction, personal exemption, and 10% bracket with a refundable personal credit.  He also removes the alternative minimum tax.

Rubio lowers the rate on capital gains and dividends income to 0%.

Rubio’s plan lowers the top corporate income tax rate to 25% and moves to full expensing of investment costs. Rubio would shift to a territorial tax system for foreign income and enact a deemed repatriation of that income at a 6% rate.

Rubio’s plan eliminates the additional Medicare tax on compensation over $200,000.  He would eliminate the estate tax.

Also Rubio’s plan eliminates the head of household filing status.  It removes interest income from the tax base, except for interest received by financial institutions. His plan also provides a new tax credit for businesses that offer paid family leave.

Rick Santorum

Former U.S. Senator Rick Santorum’s tax plan establishes a flat tax of 20% on all ordinary income. His plan does not address the standard deduction or person exemptions (that I have seen).  I have not seen details regarding itemized deductions in his tax reform plan.

Santorum retains a 20% rate on capital gains and dividends income.  Santorum would lower the top corporate rate to 20%.  He initially would lower the rate for manufacturers to 0% and then raise it gradually afterwards.  He then moves to full expensing of investment costs.

Santorum’s plan would enact a deemed repatriation of foreign income at a 5% rate. Santorum would eliminate the estate tax.

Donald Trump

Real estate tycoon Donald Trump’s plan establishes four individual income tax bracket with rates of 0%, 10%, 20% and 25%. The top rate applies to income over $150,000 for single filers and $300,000 for joint filers.  His plan does not address the standard deduction or personal exemptions.

Trump’s plan phases out all deductions, cutting them in half for the 20% bracket and eliminating them for the 25% bracket, except for the charitable deduction and the mortgage interest deduction. Trump eliminates the alternative minimum tax. Trump would eliminate the net investment income surtax.

Trump’s plan lowers the top corporate rate to 15%. Trump’s plan would end the deferral of overseas income, but it preserves the foreign tax credit.  Trump would enact a deemed repatriation of foreign income at a 10% rate. Trump would eliminate the estate tax.

Observations:

  • With the Iowa Caucus so close there is really no excuse for a candidate to not release their tax plan.
  • All of the plans offered would reduce both individual and corporate income tax rates and help to simplify the current tax structure.
  • You can’t simplify the income tax more than eliminating it so Huckabee’s is by far the simplest plan. Rand Paul’s plan would come in second in that regard. Jindal’s would be third in terms of simplicity.
  • As a self-employed person I believe I would save under every plan given.  I’m not entirely sure what my savings would look like with Huckabee’s plan however since it would be based on my spending.
  • Being self-employed Paul’s plan I find personally the most attractive with an increase in the standard deduction and personal exemptions, a low flat rate of 14.5% and – best of all – the elimination of the payroll tax. Huckabee’s plan would be the most simple, but again it’s hard to compare savings as it is comparing apples and oranges.
  • In terms on corporate taxes Jindal has the best plan, even better than Huckabee’s as it zeros out the corporate tax rate and businesses won’t be paying more in sales tax with their purchases.
  • Huckabee and Jindal’s plans are the only two where everyone pays something.  The prebate negates some of the sales tax for lower income families however.
  • In terms of personal impact Jindal’s plan would be my second favorite.  I would probably have to reconsider my filing status however.  I have to wonder if those of us who are self-employed would not be better off incorporating under his plan with the corporate income tax being eliminated and the ability to itemize being reduced (that is true with almost all of the plans).  Also his plan would encourage saving and would further reduce the tax burden as well.
  • Not that I believe tax policy should be based on this, but it would be interesting to see how corporate charitable giving is impacted by Jindal’s plan to eliminate the corporate income tax.
  • Out of the plans submitted Trump’s and then Bush’s tax plans probably simplify the code the least.

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