Paul L. Caron

Thursday, July 30, 2009

Gingrich's Tax Reform Plan

Newt Gingrich's American Solutions For Winning the Future has launched a petition drive for Jobs Here. Jobs Now. Jobs First with four tax planks:

  1. Cut the Payroll Tax in Half for 2 Years. Every single working American pays the payroll tax. In this economy, many people may not get a pay raise, but this would immediately give every working American a take home pay raise. This would also immediately increase the liquidity of every small business, because there would be more money available to put back into the business and create more jobs. So that Social Security and Medicare funds are not affected, we would pay for this proposal by redirecting all the TARP and $787 billion stimulus money that has been allocated but not yet spent.
  2. Abolish Taxes on Capital Gains. If we want to compete with China and have the most productive factories in the world, the best jobs, and the highest take home pay, we should match China's capital gains rate of zero. This would dramatically increase investment in America.
  3. Reduce the Corporate Tax Rate. When you combine state and federal taxes, America has the highest corporate tax structure in the world. We believe that by matching the Irish corporate tax rate of 12.5%, America would be the most desirable economy in the world to open a factory, create a new job, and develop a new product.
  4. Abolish the Death Tax. If we want to be pro-work, pro-savings, and pro-family, we should not punish, but instead reward people who have worked, saved and created wealth all their life.

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The taxing power is how the political class controls the country.

Sorry, but there will never be any significant change.

Posted by: Redman | Jul 31, 2009 12:08:04 PM

I would maintain favorable tax treatment on capital gains.

The reason that dividend income gets special treatment is to offset the double taxation of corporations. I say cut corporate taxes, make dividends tax deductible and tax dividend income as ordinary income. The people in the highest marginal tax rates are high paid earners and small business owners. People who live off investment income get preferential treatment.

Posted by: Laurence | Jul 30, 2009 9:14:26 PM

Re 1st comment, "I can support reducing taxes, but I also recognize that this means services must be reduced as well. Which services does he suggest?"

How's this? I'm a double-dipper. I get a military retirement check and now I'm also getting a Social Security check since turning 62 last year. Here's what I'll do to get the country back on track. I'll take a 5% reduction on each check if every, and I mean e-v-e-r-y, other person who gets a Federal check does also.

Let's get it rolling! Any takers out there?

Posted by: BigBob | Jul 30, 2009 8:36:43 PM

"This is the same old junk that Newt and his gang have been touting for years"

Right, it was Newt and his gang that ushered in budget surpluses and a booming economy. What was your point exactly?

Posted by: James | Jul 30, 2009 8:15:15 PM

On a similar but not entirely related note, I think that getting rid of individual tax withholdings--i.e., everybody has to actively pay their taxes every month or quarter or whatever--would produce a lot more popular resistance to taxes. The unseen tax is the most effective one, and the right now income taxes are partially hidden.


Posted by: Paul | Jul 30, 2009 8:06:55 PM

Newt's plan is an excellent Stimulus plan. It would immediately empower individuals to make new choices for themselves, rather than stand in a government line, waiting hat-in-hand for some bureaucrat to let them have a few bucks.

On the Death Tax, my personal experience points to a serious unintended consequence that should alarm the Anti-corporate, Locally-Owned Crowd.

As the third-generation owner of my 600-employee company neared retirement, it was clear that keeping the ownership in the extended family would mean Death Taxes would take a huge chunk from wide-flung heirs. So he sold the company to a multi-national corporation and everyone got their fair share! Except the town and the workforce, under a far-off management, were changed forever.

I would love to see a study of how many small businesses sold to larger interests for tax reasons, and the impact that has had on the texture of our nation.

Go Newt.

Posted by: Carol | Jul 30, 2009 7:53:55 PM

As one of those so called rich I really resent leftist morons doing themselves a favor with my money. The founders were right, only net tax payers should have the right to vote.

Why should I be obligated to pay for someone elses health insurance? No adult American who is of average intelligence and not physically or mentally handicapped has a right to be poor.

Posted by: cubanbob | Jul 30, 2009 7:49:02 PM

Instant economic stimulus:

Anyone (business, landlord, etc) who has to depreciate purchases on their income tax can take the first 3 years of depreciation all at once, on any purchase made between now and the end of the year. Depreciation on those purchases during subsequent years follows the usual schedule, advanced by 3 years.

For purchases next year, you get to take the first 2 years of depreciation up front.

The following year, depreciation goes back to normal -- and the recession should be over.

Result: business investment spending increases to fill the gap left by now-decreased consumer spending.

Posted by: SamA | Jul 30, 2009 7:41:37 PM


I had a similar idea, though more granular -- make a website, like a wedding registry. The Congress fills the registry with what it wants, and when you pay your taxes you can log into the registry and "buy" what you think the country needs.

I considered this in the context of the old 1980s era anti-nuclear poster that said, "What if every teacher and school had all the supplies they need, and the Air Force had to have a bake sale to buy a bomber?" My opinion was, then and now, that the Air Force would win that one hands down.

It would be interesting to see how the people who pay taxes would spend the federal budget. I imagine there would be a very different federal government if that oh-so-subversive experiment were to occur.

Posted by: Darren | Jul 30, 2009 7:32:30 PM

Wow, Bumpus...someone was asleep during their Econ 101 classes. Unbelievable how the ignorant few can spew points with little knowledge. No cap gains will reduce investments? Capital should flow freely yet you argue for double taxation? You would think at some point the statist/leftist masses would read a book on this stuff.....

Posted by: optimusprimed | Jul 30, 2009 7:12:27 PM

Ladies & Gents,

It appears (on the surface) that this may be the correct forum to post this idea. I wish to solicit your thoughtful opinions - without rancor or spite - on the concept of a truly 'fair' tax. It is thus:

- With the understanding that one does not currently PAY taxes, it is TAKEN from us by law.
- The income of every worker and profit of every company to be taxed at a fair rate of X% and Y% respectively, to be determined.
- This tax is not to be levied before the worker receives his paycheck, it is his responsibility to pay on or before April 1.
- That the IRS (or equivalent) writes to the worker with a bill saying "you earned $A this year. You owe $X*A in taxes."
- That the taxpayer may choose to which gov't Departments (Defense, Energy, Agriculture, etc.) to divide this taxable amount up into to an amount totaling the total tax levied. For example. Miss Smith earns $100k/pa, taxed at 15% flat rate pays $15k into her choice of Depts. Say, $5k to Defense (she's ex Marine Corps), $5k to Energy (go nuclear power research!) and the $5k remaining to be split equally. Any, all, one or many, or can check the "let the bureaucrat decide" box.
- Thus each Dept. budget is expressly determined by the People.
- Thus each Dept. must compete for their budgets.

I welcome your thoughts.

Posted by: eldoktor | Jul 30, 2009 6:50:12 PM

the death tax is the most evil tax ever created. what legitimate right does the gov have to after tax wealth? none. we shouldn't have to create trusts and waste on insurance to protect ourselves from our own government. horrible

Posted by: taig | Jul 30, 2009 6:36:31 PM

India also has a 0% LT Cap gains tax.

I see little choice but to match our tax rate to India's and China's.

Posted by: wombly | Jul 30, 2009 6:33:23 PM

Here are some better ideas :

Eight ways to supercharge the US economy.

Posted by: wombly | Jul 30, 2009 6:29:19 PM

Is Bumpus kidding?

Re-read what Mr. Gingrich said about payroll taxes. His proposal is two steps: 1. Stop collecting payroll taxes temporarily and 2. Offset it on the books with TARP and stimulus funding.

One note: There is no separate account for Medicare and Social Security, nor was there ever a separate account. Both come out of general funds. You should be asking what effect stimulus and TARP funding will have on Medicare and Social Security because they are in direct competition for dollars.

How would a reduced capital gains promote divestment? Do you understand how capital gains tax works? "Why keep money invested for the long-term if I can liquidate my investment and move my money to the next best thing?" A better question is why would making yourself much less desirable up front help matters? A company with plants, supply chains, etc. isn't going to uproot for "the next best thing" if it's just incrementally better as it wouldn't make financial sense. Lowering capital gains and corporate taxes has worked consistently across many decades and many cultures.

Losing tax revenue is a very weak argument. Check out and see for yourself what a windfall these tax categories aren't. We are so far past the curve that we actually stand to gain revenue by lowering these taxes. A thought experiment: If taxing 60 or 70 percent produces our current level of revenue, how much more would we rake in if we taxed it 100 percent? How about 150 percent? Can you see how at some point a tax completely shuts down an activity (at least legally) within its jurisdiction? Can you agree that at some point before shutdown it considerably slows that activity? You may have an idea of where these breaking points occur, but there is actual real-world data out there to consider that shows us where these breaking points are. And they happen to be much, much lower than the current US rates.

Regarding the death tax, do you realize that every day people make decisions on the fate of their estate and that taxes are a major consideration? Taxes, even this one, affect behavior. WIth expatriot retirement communities cropping up all over the globe, don't eye these evil rich people's money too greedily. They have choices. I would also throw it back to you: Why should a government be entitled to their wealth. Because by some fluke the person was foolish enough to live out his or her final days in a jurisdiction where people feel they are more entitled to a total stranger's money than the people who knew, loved and supported that person throughout his or her life? Why shouldn't it go to those people living in a slum in India instead? Because by fluke of birth you happen to be born in the U.S.? Why does your fluke of being born in the same country count, but the relatives' fluke of being born in the same family not count?

Posted by: mojavewolf | Jul 30, 2009 6:29:17 PM

It is amazing to me that so many people can't see the forest for the trees. Take the last point -- estate taxes. I hate to break this to you, but it's human nature, programmed into our biology to want to provide for our kids as best as we can. The comment about "what right do they have to that money just because who their parents were?" is just plain silly. What right does anyone have to money they obtain? One way or another, it was earned. Besides, since we're talking real life here, lets face it: when a rich wastrel inherits a bundle from Mommy and Daddy, history is replete with examples of them blowing through the money in a few years and going on welfare -- occasionally one even wises up and goes to work.

Corporate Tax? I loved the comment about "ending corporate welfare" to raise taxes instead. Do you realize that if you greatly reduce corporate income taxes a lot of the "corporate welfare" (including the legendary umpteen-martini lunches) stop being profitable? That the fastest way to kill all of those tax breaks is to reduce taxes?

Reducing capital gains would cause divestment? Clearly, sir, you are a member of the have-not class -- you have not had Economics 101. A sudden boost of 20-30% in your income would mean you'd cash in the suddenly better-producing assets? Maybe in Paul Krugman's world view, but most mainstream economists would say people would hold onto those profitable investments -- not get rid of them.

As for giving a tax holiday on payroll taxes? Well, why not? The "Stimulus Bill" was never going to work, no matter how hard the sell was. I love the 3000+ jobs in Oregon that last, on average, 35 hours... and odds are, those were minimum wage jobs. Paying for it a tax holiday? That's a laugh... this administration believes in "I'll gladly pay you in ten years for caviar and pate de fois gras today."

The whole debate is between people who want to give money to people who didn't earn it and people who think they should keep the money they've earned. Except the "redistributionists" know full well that if they come out four-square in favor of that they'll be labeled "socialists" and they don't want that... people in the US don't much like socialists.

Long ago, back in about first grade, I learned not to trust people who look me in the eye and lie.


Posted by: Gina Marie Wylie | Jul 30, 2009 6:24:13 PM

Everyone should read the first chapter of Mankiw's econ book.
How do some of you not understand that people respond to incentives?
People face trade-offs, you know? People make decisions on the margins, right?

So, imagine a small business owner who has family assets in a trust to protect his holdings from estate taxes. If you remove the estate taxes, he can keep the money in his business. If you reduce the capital gains rate, then he can sell assets in under-performing stocks or bonds and invest them in his business without paying out to the govt. All of these factors, including reduction of payroll taxes, are incentives to hire employees and deploy capital.

Markets most efficiently deploy capital, not government.

And from some of the comments above, it is clear that some of you have never owned a small business, made payroll, borrowed money to invest in a business, etc.

And I would bet some of these comments are based on envy, resentment, and a sense of entitlement.

Posted by: Wendell | Jul 30, 2009 6:20:37 PM

Is Bumpusie kidding?

1) Did you not see the 'so social security and medicare funds are not affected'? Considering that ~$700B of the $787B has not been spent, that probably exceeds half of SS and Medicare receipts alone, and if you put all of the TARP money (that weren't used to buy up troubled assets as advertised) into SS, the 'troubled' assets would be the best and only assets actually owned by SS.

2) '- How will this promote investment? ' Buying assets is done on an expected after tax basis. If you reduce the capital gains tax, you increase the expected after tax returns, assuming that you are at least trying to buy assets that go up in value. If you increase the expected returns, more projects will make sense, and you will get more investment. It will also help share prices for the same reason, and facilitate additional equity financing. The same point (lower taxes=more investment) applies even more strongly to the corporate taxes.

3) You get to the right answer (although for the wrong reason). To be fair to your point there is a Laffer curve affect. Our corporate tax rate is way over on the right side of the curve, and lowering it would increase investment, profits and total tax revenue. Whether Ireland's 12.5% is too far to the left on the Laffer curve (and no, the Laffer curve does not mean lower taxes are always higher revenue), I don't think we have enough information to say. My proposal would be to be 2 points below the GDP weighted corporate tax rate of the OECD nations. It would keep us competitive, especially as once the US drops its rate...others would likely follow, to the benefit of all mankind.

4) The death tax does do tremendous damage to family enterprises. And it is fundamentally unfair...the person who created the wealth already paid taxes on all the money he earned. That person should be allowed to give his or her (after tax) money to whoever he or she pleases without the state interfering. The state doesn't get to get a chunk of your after tax money while you are alive, and there is no reason it should when you die. At a minimum, it should be lifted to the $50mm mark and indexed to the coming inflation so that it is only an issue for the truly rich, and not hitting the farmer with 1,000 acres or the guy with 5 dry cleaners who don't have the tax avoidance strategies (although they should) of a Theresa Heinz Kerry, or George Soros or Warren Buffet. Buffet is an outspoken supporter of the death tax, but placed the vast majority of his money in a trust so he won't pay it on the bulk of his money.

Posted by: Daedalus Mugged | Jul 30, 2009 6:16:28 PM

Those who believe cutting taxes cuts revenue to the Fed. Gov't. should take a look at how revenue collections exploded after the '61 tax cut, the '81 tax cuts and the '00 tax cuts. Kennedy, Reagan and Bush took the political risk and it worked.

If we don't cut taxes, our '08 Depression will lead to a long period of low job growth.

Read your history!

Posted by: Dean | Jul 30, 2009 6:11:22 PM

I can support reducing taxes, but I also recognize that this means services must be reduced as well. Which services does he suggest?

I'll suggest a service for him to reduce. Abolish every antidemocratic "czar" which Obama has emplaced to establish White House rule by decree, with no accountability nor involvement by our elected representatives.

Posted by: Insufficiently Sensitive | Jul 30, 2009 6:03:20 PM

@Doc I think I wasn't clear: I favor reduction or elimination of the corporate tax for precisely the reason you state. But even class warriors like taxlawyer should agree with us, because the damn tax is regressive anyway. People who support the corporate tax invariably think either that it effectively falls on the wealthy or (more viscerally) that corporations are evil and that which is evil should be taxed. Oh, and politicians like it because it falls indirectly and doesn't make people as mad as other taxes.

I also agree with you about reducing corporate welfare to pay for tax cuts, btw.

Posted by: PJ | Jul 30, 2009 5:54:08 PM

"Payroll Tax
- What will be the impact on SS and Medicare funding for such a measure?"

What'd you do? Just read the bolded part and jump right into spewing forth with your beclowning diatribe?

Here, I'll help you out:

So that Social Security and Medicare funds are not affected, we would pay for this proposal by redirecting all the TARP and $787 billion stimulus money that has been allocated but not yet spent.

Posted by: Hogarth | Jul 30, 2009 5:54:02 PM

1. the idea is that if we are going to spend a trillion dollars we dont have, better to spend it on SS and Medicare so that working folk get a break on it for two years. I was unaware only white people and rich people work. Seems pretty clear in his presentation.
2.I would love to abolish taxes on capital gains, but who knows how long that would last before the government raised them again. The net effect probably would be the removal of capital. Maybe a better idea would to remove capital gains on investments made during a described period of time and held in investments for a minimum amount of time. This would not just be helpful for the rich, but anyone who buys stock. Frankly I dont care where the money comes from and how rich they might be as long as my company continues to exist and make money and pays me.
3.would love to see corp tax rates decline. The less tax a corp pays, the more people who pay taxes it can hire, the more it can expand, generating more taxes, the more it produces which, when sold generates more taxes. Primarily, though the more people you have with jobs.
4. If I make some money, I think I have the right to decide who it goes to. Not the government. If you can get around it with gifts and insurance, why bother with it. It is inherently unfair to the person that earned the money that it be sent to the government as a tax. It implies that all resources are owned by the government and upon death the government can reclaim them. If someone has a issue with the accident of birth rewarding them upon death of their parents, then clearly the thing to do implement a 100% death tax on any size of estate, so that no one is rewarded by accident of birth. Take the house, cars, rv whatever as soon as the owner dies.

Posted by: buzz | Jul 30, 2009 5:51:48 PM

Really people, what exactly is your hangup about letting people keep more of what they earn? Exactly what has the $800 billion stimulus done for the recession? Or the how many trillion bailing out Wall Street? #s 1-3 are direct stimulus, unlike any of the current politically-directed spending which is doing nothing to bring an end to this recession. We do not exist to serve the government; it's a bit the other way round for a free-born people.

Posted by: Duke | Jul 30, 2009 5:50:48 PM

None of the objections made by the above commenters make any sense. It's Orwellian to assert "capital should flow freely" as a justification for government confiscation of capital. There's no connection between tax cut proposals and the bailouts (which were, I agree, a bad idea - capital should flow freely). It's ridiculous to say that abolishing capital gains would lead to disinvestment because investors may realize gains and then redeploy their earnings, especially if you go on to say that capital should flow freely.

The plea for sophisticated thinking from the guy who brings race and Newt's marital problems into the discussion is contemptible, but not unexpected from a transparent Moby.

Norm apparently opposes tax cuts in principle. Thank goodness he's not in charge, and here's to the day when his allies aren't either.

Posted by: bgates | Jul 30, 2009 5:49:45 PM

Is there anyone on this blog naive enough to believe that the rich pay high taxes? May I sell you a bridge or provide you with investment from a wise man named Madoff?

The high tax regime currently in vogue for the rich does zero, zip, zilch, nada, nichts to raise taxes on the rich simply because they have attorneys and accountants who can shelter ad hide it. The wealthy can AVOID taxes. (Does this come as a surprise to anyone right of Lenin?)

The best, most intelligent regime is to move toward a flat tax of 15-19% with noting excluded. That way, everyone is invested in efficient government (those idiots in DC should not be spending my money willy-nilly) instead of having almost 50% on the IRS dole each year.

Moreover, the rich would have no way to avoid. They would need to pay also.

Progressive taxes are a monster failure and the sooner we deal with that reaity, the better.

Posted by: Jeremy Wa | Jul 30, 2009 5:45:39 PM


We don't need to cut services. The Treasury can just issue debt and have the Fed buy all the debt with newly printed money.

Voila! Problem solved.

Posted by: W.C. Varones | Jul 30, 2009 5:38:28 PM


1) It is regressive, but because of US taxing structure, we are sending a lot of corps overseas. The loss in jobs and capacity is worse than the recessive effect of the tax cut.

2) We can cut corporate welfare to help fund the tax cut.

Posted by: Doc Merlin | Jul 30, 2009 5:37:46 PM

Well, let's go to econ 101 guys. Expansionary macro policies- increase spending and cutting taxes. Increasing spending hasn't worked. Isn't cutting taxes the only option left? And a payroll tax is a tax cut for white people? You guys are absolutely absurd caricatures. I didn't realize people of color didn't work in jobs.

Posted by: Steve | Jul 30, 2009 5:37:25 PM

Or maybe "don't tax you, don't tax me, tax the babies yet to be."

All taxes are taxes on "babies yet to be", because all of us pass our wealth on to our heirs when we die. Every dollar the government takes from us is a dollar that our children don't get.

Posted by: Dan | Jul 30, 2009 5:35:56 PM

Give tax cuts to rich white people and the economy will boom.

Apparently in your world only rich white people have jobs or save money.

Posted by: Dan | Jul 30, 2009 5:33:41 PM

@taxlawyer: Nice rhetoric, but Bumpus is right about the corporate tax. It's regressive, because the non-wealthy spend a higher percentage of their income buying stuff from corporations than the wealthy. Oh, you think that tax is coming out of profits?

Posted by: PJ | Jul 30, 2009 5:25:33 PM

Was it Russell Long or Wilbur Mills who said "don't tax you, don't tax me, tax the fellow behind the tree?"

Newt wants "don't tax you, don't tax me, and don't tax the fellow behind the tree."

Or maybe "don't tax you, don't tax me, tax the babies yet to be."

Posted by: Norm Stein | Jul 30, 2009 11:08:09 AM

Give tax cuts to rich white people and the economy will boom.

Didn't we already try that? Didn't work too well I see.

And our party got the stuff kicked out of us in 2008, and probably will also in 2010.

Maybe we need some more sophisticated thinking.

Newt should be busy talking about family values and looking for his fourth wife.

Posted by: save_the_rustbelt | Jul 30, 2009 8:59:03 AM

This is the same old junk that Newt and his gang have been touting for years--cutting taxes (especially on capital gains, estates and corporations, to benefit the wealthy) and others that will ensure the demise of the so-called "entitlements" (they call programs that assist people in having decent lives entitlements and complain; they never seem to complain about entitlements for the wealthy or big corporations, like the percentage depletion allowance or the charitable deduction for (untaxed) appreciation). Worse, this same kind of "thinking" (really, just sound bites to confuse the tax-illiterate masses into thinking that the Republican tax cut and deregulate program makes sense) is what landed us where we are today--in a recession that still promises more job losses and home foreclosures before it is done while the big banks that we bailed out are making huge profits again from endeavors that again put the financial system at systemic risk.

Posted by: taxlawyer | Jul 30, 2009 8:38:19 AM

Is Newtie kidding?

Payroll Tax
- What will be the impact on SS and Medicare funding for such a measure?

Abolish Capital Gains Tax
- How will this promote investment? If anything, abolishment of Capital Gains would promote divestment. Why keep money invested for the long-term if I can liquidate my investment and move my money to the next best thing?

Reduce Corporate Tax Rate
- I agree in principle. Corporations pass on the cost of taxes onto its consumers. If corporate taxes are eased, then the corporation can either pass the benefit onto its consumers, use the surplus to grow its business, or distribute the earnings to its shareholders. I'm skeptical of the distribution to shareholders given the current dividend taxing regime.
- While the Ireland tax rate is low,the US does not need to set its rate as low as Ireland because it would be giving up too much tax revenue for the benefit of lower taxation. Besides, while tax rate is one factor in determing where to place manufacturing/production facilities, it is not the only factor.

Death Tax
- The rhetoric behind the name alone I find troublesome. How does eliminating the estate tax reward the dead person? The person is already dead! It rewards his devisees. Why should they be entitled? Because they happened by some fluke to be related to the rich person instead of being born in some slum in India?
- Further, the rich person has a gift exemption and an estate tax exemption before E&G taxes are levied. If that rich person gifts away 12,000 to each of his intended beneficiaries per year, and a separate 1,000,000 gift before his death, and the current 3.5 million (reducing to 1,000,000 in 2011), then I still don't see the justification for eliminating the death tax.
- Does the estate tax harm small business? No. You can plan around death via insurance and lifetime gifts.
- Capital should flow freely. While there is justification to saving for retirement to pay for necessary living and medical expenses, there is no justification for preserving capital in the hands of the top 1%. Capital should flow freely.

I'm looking for something new from Republican talking points.

Posted by: Bumpus | Jul 30, 2009 6:23:03 AM

I can support reducing taxes, but I also recognize that this means services must be reduced as well. Which services does he suggest?

Also, I thought most U.S. corporations already paid a very low effective tax rate. Indeed, I recall one post here about how even large corporations pay no tax.

Posted by: hah | Jul 30, 2009 5:13:16 AM