Most of the candidates running for the Republican presidential nomination want to simplify the federal tax system. Conservatives say that would spur economic growth, but some scholars say those plans could end up hurting the poor.
GOP leaders say the current federal tax system is too complicated, burdensome, and costly. One solution the some of candidates support is replacing federal income tax brackets with some kind of flat tax.
“What we are hearing from most of the candidates center on the idea of making the tax process less confusing,” said Cristi Gleason, a U. Iowa accounting associate professor. “… This I think is a reaction to the general public’s frustration with the taxation process. I agree that right now filing taxes can be confusing because of the various deductions and loopholes.”
Leo Linbeck — cofounder and CEO of Americans for Fair Taxation, sometimes referred to simply as FairTax — said his organization focused on tax simplification when members penned their tax-policy proposal in the mid-1990s.
The FairTax plan would eliminate existing federal taxes and replace them with a national sales tax of 23 percent.
The FairTax plan wouldn’t include deductions or exemptions for such items as food staples, which many states do not subject to sales tax. However, Linbeck said, the plan does include a “prebate” to cover taxes an average consumer would pay for such basic needs as food and shelter.
FairTax proponents say the plan would be revenue-neutral — that is, it would not cause a huge dip to federal revenue. However, Eugene Steuerle, a researcher who works with the Tax Policy Center, said many flat-tax proposals such as FairTax would mean fewer dollars coming into the federal government.
“They are reducing taxes on higher-income-level households at the expense of increasing the tax burden on the lower-income households. The decrease in revenue would make funding for entitlement programs difficult,” he said. “That is probably because they replace a progressive rate structure with a flat-rate structure.”
Republicans are also eyeing the federal long-term capital-gains tax, a tax on income from investments such as stocks and bonds.
Many Republican tax proposals would either lower the capital-gains tax — which is currently 15 percent — or eliminate it altogether. They claim this would offer an incentive to consumers to invest more.
But Steuerle says this, too, favors the rich, because many managers and CEOs convert their income to capital, and a complete elimination of the capital-gains tax would cost the government huge amounts of revenue.
In 2011, for instance, the capital-gains tax generated $447 billion in federal revenue, 3 percent of the country’s GDP.
Some in the Republican race also want to eliminate the alternative minimum tax — a flat rate imposed on individuals and businesses if their income federal tax bill falls below a certain amount.
Anjali Singh, a tax accountant, says that change would primarily affect individuals with higher incomes and big corporations.
“The alternative minimum tax is calculated for every individual and business. Taxpayers pay the alternative minimum tax if it comes out to be higher than their federal income tax,” she said. “Usually, people with higher incomes and corporations are able to keep their taxable income surprisingly low due to professional and timely tax planning. This allows them to bring down their taxable incomes to lower tax brackets. This is when the alternative minimum tax kicks in.”
Candidate Positions:
Michele Bachmann
Bachmann wants to reduce the number of federal income-tax brackets, repeal taxes put in place by the Democrats’ 2010 health-care overhaul, reform the alternate minimum tax, and eliminate the federal inheritance tax.
Rick Santorum
Santorum, too, wants to bring down the corporate tax, eliminate long-term entitlement programs such as Medicare and Social Security, and cut spending and end bailouts.
Ron Paul
Paul calls for an immediate elimination of the federal income tax and the Internal Revenue Service, much like the FairTax organization. He also supports excise tax, tariffs, and cuts in spending. He believes people should pay taxes only on what they spend.
Newt Gingrich
Gingrich wants to eliminate the capital-gains tax, bring down the corporate tax to 12.5 percent, and give people an option of a 15 percent flat income tax with a personal deduction of $12,000.
Jon Huntsman
Huntsman wants to eliminate all exemptions and deductions and implement just three federal income-tax brackets — 8 percent for low-earners, 16 for middle-income earners, and 23 percent for higher earners. He wants to lower corporate tax from 35 percent to 25 percent.
Rick Perry
Perry’s plan would cut taxes, cap federal spending at 18 percent of GDP, and give taxpayers an option of a single 20 percent flat tax that will not tax capital gains and dividends. Taxpayers who opt into the flat-tax system would not be able to switch back to the bracketed system.
Gary Johnson
Johnson wants to cut spending and eliminate the capital-gains tax. He also wants to eliminate the corporate tax while simplifying the tax code for individuals and families.
Mitt Romney
Romney wants to put a cap on government spending and reform the country’s entitlement programs to avoid insolvency. Instead of a flat tax, he said he’d keep and reform the current income tax system in place and also loosen restrictions on investments.
Herman Cain
Cain plans to set the federal income tax and corporate tax to 9 percent each while eliminating the payroll tax. He also plans to set up a new 9 percent national sales tax on top of the existing local sales taxes.