Two certainties, as Benjamin Franklin wrote, are death and taxes. Add a third: On taxes, U.S. presidential candidates will promise more than they can deliver. And, if elected, they pay a price.
The overpromising may be more egregious than ever in the 2016 presidential race. Yet taxes were glossed over in the debate of Republican candidates last week.
Donald Trump says that his tax plan, which has huge reductions in rates and on the amount paid on investment income, focuses on working folks and sticking it to billionaires such as himself. A recent analysis by the Tax Policy Center showed just the opposite. The Trump plan would cost the Treasury $9.5 trillion over the first decade, and almost $25 trillion over 20 years.
The tax cuts would principally benefit the wealthy, almost 40 percent would be for the top 1 percent. The superrich – the top one-tenth of 1 percent – would get an average annual tax cut of $1.3 million.
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By comparison, the lowest, or poorest quintile, would get an average tax cut of $130, or 1/1000th of what the wealthiest receive. In percentage terms, the top 1 percent gets a 7 percent cut, the poorest taxpayers a 1 percent reduction.
The center also analyzed Jeb Bush’s proposal, which would cost less: $6.8 trillion in a decade. The distributional effects would be almost the same, the center found, with upper-income taxpayers receiving much of the benefit. The wealthiest 1 percent would get an average annual tax deduction of $167,325.
The center plans to examine the plans of senators Marco Rubio and Ted Cruz next week. Although some of the specific proposals are different, the bottom lines are expected to be similar.
Both the Bush and Trump tax plans would “improve incentives to work, save, and invest,” the center stated, while noting that these gains could be partly offset by increases in the national debt.
Also, while both these Republican plans would remove any limits on exemptions for charitable contributions, the Tax Policy Center projected that the steep reduction in rates would reduce the incentive to give to charities.
Conservatives complain that the center is associated with the left-leaning Brookings Institution and the Urban Institute. But the analysts include Republicans, and the team reached out to the campaigns and Republican economists for input. The conservative Tax Foundation, while projecting smaller revenue losses, concurs that the distribution of the cuts heavily tilts to the wealthy.
The center has also said that the liberal Democrat Bernie Sanders significantly exaggerates the revenue that would be brought in by his financial transaction tax. The Vermont senator hasn’t produced a comprehensive tax plan that would pay for the enormous expansions of social programs he proposes: universal health care coverage, free tuition at public institutions and huge infrastructure projects.
He advocates further tax increases on the wealthy, but some hikes for the middle class seem inevitable under his plan.
Hillary Clinton, seeking to stem a surge by Sanders in the Democratic nomination race, rushed out a proposal last week that would impose a levy on annual income of more than $5 million. Her spending proposals are more modest than those of Sanders, as is her tax plan. But she has vowed not to increase taxes on anyone making $250,000 or less, a promise that some Democratic economists say is unrealistic.
She might remember that her husband made a similar pledge in 1992 – the level was $200,000 – but his 1993 budget plan included a small gasoline tax hike that Republicans seized on for political gain. Likewise, President George H.W. Bush’s reversal of his “no new taxes” commitment in 1990 set the stage for the fiscal stability and economic boom of the 1990s, according to many economists. It also may have cost Bush his re- election.
Both Ronald Reagan and George W. Bush insisted that their big tax plans, which were largely enacted, would generate lots of new revenue. They didn’t, and Reagan went along with a number of smaller tax increases to offset the loss. Bush didn’t and deficits soared.
On taxes, there are three realities: the U.S. burden is not especially high compared with other industrial nations; tax cuts alone don’t generate enough economic activity to avoid deficits; and there’s not enough money in taxing the rich to pay for big new social programs.
But don’t expect to hear that from any of the candidates in New Hampshire and Iowa over the next three weeks.
Albert Hunt is a Bloomberg columnist