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Wednesday, August 31, 2011

Jon Huntsman's Tax Plan

Huntsman Republican presidential candidate Jon Huntsman today released a 12-page jobs plan with these tax components:
  • Simplify The Personal Income Tax Code And Lower Rates. Rather than nibble around the edges of the existing tax code, Gov. Huntsman will introduce a revenue-neutral tax plan that eliminates all deductions and credits in favor of three drastically lower rates of 8%, 14% and 23%. Eliminating deductions and credits in favor of lower marginal rates will yield a simpler and more efficient tax code, decreasing the burden on taxpayers.
  • Eliminate The Alternative Minimum Tax. Under the new simplified plan, Gov. Huntsman will eliminate the Alternative Minimum Tax, which is not indexed for inflation and is penalizing an increasing number of families and small businesses.
  • Eliminate The Taxes On Capital Gains And Dividends In Order To Eliminate The Double Taxation On Investment. Capital gains and dividend taxes amount to a double-taxation on individuals who choose to invest. Because dollars invested had to first be earned, they have already been subject to the income tax. Taxing these same dollars again when capital gains are realized serves to deter productive and much-needed investment in our economy.
  • Reduce The Corporate Rate From 35% To 25%. The United States cannot compete while burdened with the second-highest corporate tax rate in the developed world; American companies and our workers deserve a level playing field. With high unemployment, it is important that we not push corporations and capital overseas. We need employers to be based in America if they're going to provide jobs to Americans.

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Tracked on Sep 1, 2011 6:08:03 AM

Comments

Ummm, this sounds like it cut into revenue. No?

Posted by: anon | Aug 31, 2011 5:28:46 PM

I agree with all these principles. Too bad Huntsman doesn't have a chance.

Posted by: MochaLite | Aug 31, 2011 6:03:28 PM

Anon, it may actually be revenue neutral as it says due to "Eliminating deductions and credits"...

Which sounds great until home owners start crying about their mortgage interest deduction, and every major institutional charity comes out against eliminating the charitable deduction, etc. All these credits have some major backing, which is how the tax code got larded up in the first place.

Posted by: American Delight | Aug 31, 2011 11:23:44 PM

It shouldn't cut into revenue. Some will pay more than they have in the past, some less depending on how cleverly they've been manipulating the tax code. And Huntsman doesn't have to win, the nice thing about ideas is that anyone can pick them up and use them.

Posted by: John Stephens | Sep 1, 2011 4:38:02 AM

Anon: the federal government will probably collect less overall, but milking a dry cow harder won't get you a fuller bucket. Low taxes are incentives to spend and risk, which results in business creation and expansion -- which means more jobs, broader and larger incomes, and thus more taxpayers than the existing, exhausted ones. But you've got to ask yourself: is the private sector there to enrich private citizens, or to feed the federal government? If it's the former, especially since Washington runs up a tab anyway, why should the population's livelihood depend on whether the state gets more of their money?

This is not theory. My former employers brought me back on contract because employees who remained after significant layoffs are overworked and things aren't getting done. If their taxes dropped by forty percent, there would be little question over reinstating myself and others. But as the situation is now, they're scared like everyone else, and might just save us for big bottlenecks. That means I, unless I get lucky, remain underemployed and contribute zilch to federal coffers; and work that would turn more profits for the company (and tax revenue) literally sits on the shelf.

Mocha: nothing says Huntsman's idea can't be adopted by another candidate.

Posted by: Cover Me, Porkins | Sep 1, 2011 4:46:09 AM

The corporate income tax should be eliminated ideally, but a politically viable improvement would be replacing it with a gross receipts tax.

Posted by: Brock | Sep 1, 2011 5:02:09 AM

Anon: If it eliminates deductions and credits, no, it doesn't cut into revenue.

I imagine my own taxes would probably go up under this plan if there's no mortgage deduction, but then I'm willing to accept that if the capital gains tax evaporates. I'll still end up paying more, but it's worth it for the lower corporate rate (which will mean higher growth and better investment performance).

With a lower corporate tax burden, we'd see lower unemployment. In a few years, I imagine we'd be back to revenue of 17-18% on a GDP that's actually growing. Alone with a near-freeze in spending, we might even see serious deficit reduction within a decade. I could get behind this plan.

But it doesn't put money in congresspeople's pockets, so it has no chance in hell.

Posted by: ern | Sep 1, 2011 5:10:52 AM

Too bad well meaning do-gooders like Huntsman make sense but will only be sandbagged by future liberals. For example, eliminate all those pesky deductions, like mortgage for instance (not saying he is proposing this, just an example of something that has been talked about) and then find out future congresses and presidents re-raise rates but don't put the deductions back. Now you are screwed on both ends if you are a hard working person, married and investing in permanence and community by owning a house.

The problem with all these plans is that they rely on future sanity and commitment to work. Guess what....

Posted by: JEB | Sep 1, 2011 5:16:23 AM

Why would any corporation donate to charities if there was no deduction? I'm sure he would say that one deduction could get in. What would encourage employers to help pay for healthcare? Oh maybe that deduction and credit could stay. What about the treaties we have that are more primary than the codes itself? Well, we can renegotiate those at cost to the taxpayer.

Philosopher kings do not rule.

Posted by: anon | Sep 1, 2011 5:38:08 AM

Sometimes good ideas have bad timing. With 30% of the mortgages already being under-water, what do you think those people would do if they lose their mortgage interest deductions? Would the majority just walk away from their loans? How would this affect the value your home? Where would the money come from to bail out the banks that suddenly went upside-down? How would this affect the dollar? These are not normal times! The law of unintended consequences should compel us to look very carefully at huge changes in the tax code.

Posted by: arnonerik | Sep 1, 2011 5:41:02 AM

it's a good start, but the corporate deductions need to eliminated too.

Posted by: errhead | Sep 1, 2011 5:49:17 AM

Revenue neutral is the problem. The government needs to take in less, not the same or more and spending has to be radically reduced.

A better idea is to eliminate the corporate income and capital gains tax outright and tax the shareholders on the passthrough (including taxing endowments, foundations, non profits and any entity that doesn't distribute to otherwise taxable individuals). As for personal taxes, 15% with a high personal deduction for (twice minimum wage for each earner) and a tax credit for FICA taxes ) and no other deduction or exemption (including municipal bond interest). In addition a personal capital gains tax rate of 15% adjusted for inflation.

Posted by: cubanbob | Sep 1, 2011 6:36:00 AM

Sounds smart, thankfully he has no chance to win, or I would need to find a new line of work.

Posted by: tim | Sep 1, 2011 6:55:05 AM

They (congress) did that in 1986, reducing top rates to 28% in exchange for the elimination of many tax loopholes. In 1991 and again in 1993 they raised rates. Its a shell game!

Posted by: R Christiansen | Sep 1, 2011 7:09:29 AM

These principles appeal to me too, but as a 30 something with 3 kids, a mortgage and big state taxes I'd get hammered by this. If you count future college obligations as debt (and I do), I'm in debt up to my ears.

It would seem to benefit is my parents' generation, who have few deductions left, good income, a pension, no debt, capital income, etc. They never had student loans and only had a mortgage for a few years. I'd have a hard time supporting any plan that helps that group any more at my expense...

Posted by: LV | Sep 1, 2011 7:29:59 AM

How can he, or anybody, address taxes without addressing entitlements? As for three rates, why not a flat tax on DISPOSABLE income? Why ANY corporate taxes; we, the consumers pay those taxes. Where else do corporations get income but from those who purchase their products and services? Some of Huntsman's ideas are attractive, but could be bolder. I hope he gets more vetting; what we have today was given a pass due to skin color, and we're all paying dearly.

Posted by: tom beebe st louis | Sep 1, 2011 8:12:26 AM

1. MochaLite, although I agree with you that Huntsman has no chance to be president, you fail to perceive that he is not campaigning for president. He is the establishment GOP consensus choice for V-P and he knows it.

2. If we're going to do radical surgery on the income tax regime, then let's go big and get rid of the corporate income tax completely. One of the only true statements ever made by Ronald Reagan was that corporations do not pay income taxes--only people pay income taxes. The corporate income tax is not contributing siginificant revenue anyway. Let's dump it completely and make up the difference with a national sales tax or higher individual rates.

3. I'm tired of this old saw about taxation of investment income constituting double taxation. The same could be said about sales taxes and most other taxes. Moreover, we don't have an investment problem. American corporations are sitting on more investment capital than ever before in history and it isn't creating any jobs or new economic wealth.

Posted by: Publius Novus | Sep 1, 2011 8:13:34 AM

I like all his ideas but would like to see the Corporate Tax rate down to about 15% while also allowing companies to repatriate their cash for a period of time at the new rate. Also like to see them explicitly mention the removal of the estate tax.

With the information we know about liberals/Dems and their charitable giving, can you imagine what will happen to that line item with no deduction? Ouch.

This is obviously a great plan but it is easy for a candidate to throw this out there when they most likely won't even produce a top 5 finish within their own parties primary.

Posted by: Optimus Primed | Sep 1, 2011 8:41:55 AM

Agree in part, the AMT is a waste and the Corporate rate is a joke. Disagree in that we need a "net worth tax". Each year these wealthy individuals need to contribute 10% of their net worth to lower the debt. It is a "fair tax". Poor people too-except they don't have anything...
Net worth tax is also a "fair tax for corporations". remember fair tax is NET WORTH tax!

Posted by: Nick | Sep 1, 2011 9:14:27 AM

If the desired effect is to simplify the Code, why not eliminate the corporate rates all together and tax dividends at the individual level?

Posted by: James | Sep 1, 2011 9:23:38 AM

MochaLite said, "Too bad Huntsman doesn't have a chance."

But he does have the chance to steer the debate of the Republican field. Perry et alia will need to release their own proposals.

Posted by: James | Sep 1, 2011 9:29:40 AM

> Ummm, this sounds like it cut into revenue. No?

Yet another person who thinks that marginal tax rates largely determine revenue.

Deductions and credits matter a lot as do other things (including, but not limited to, definitions of income). That's why it's possible for someone to pay less when rates are 70% than when they are 30%.

In other words, you need to actually do the arithmetic, and do it correctly, even if you are a smart and caring person.

Posted by: Andy Freeman | Sep 1, 2011 9:58:10 AM

I note that the plan bravely omits which specific deductions and credits will be eliminated. The principle of the approach sounds fine. The politics of the specific will be a huge challenge.

Posted by: Chris G | Sep 1, 2011 10:08:04 AM

why no cutting of expenditure? surely there are one or two offices, departments, cabinet posts in government that can be severely cut or eliminated without the end of the world coming the next day. Of course, that doesn't stand a chance either.

Posted by: subrot0 | Sep 1, 2011 10:11:44 AM

Some days I feel really stupid, like when I can't understand why taxing capital gains is double taxation.

Posted by: Bob | Sep 1, 2011 10:43:00 AM

If the tax deduction for gifts to charity is changed, it will hurt taxpayers and charities. You might want to clean out your house and garage and donate things you don't use anymore now. To donate car you don't need, just go to http://www.cars4charities.org/

Posted by: Cars4Charities | Sep 1, 2011 6:03:19 PM

The only real way to bring about tax reform is to eliminate tax withholding and estimated tax payments. When taxes come due every April and people have to sit down and write one check for the taxes due to the federal government you will see a revolt that would make the American Revolution of 1776 seem like just a simple walk in the park.

Posted by: GreenRock | Sep 3, 2011 8:07:42 AM

Not taxing capital gains and dividends is a huge give-away to the idle rich. I myself look forward to someday inheriting a few million. If I live relatively frugally, and invest carefully I could live off the investment income, give up life as a productive worker and never pay taxes again. WRONG INCENTIVE! We need the "death" tax and taxes on investments to prevent creating a permanent class of "landed gentry." Already the gap between the haves and the have nots in this country are too great.

Posted by: profgirl | Sep 6, 2011 10:32:31 AM