With much of the Republican presidential field unwilling to address budget issues, former Florida Gov. Jeb Bush last week released a comprehensive and detailed tax plan worth taking seriously. Bush’s proposal is arguably more fine-grained than was Mitt Romney’s during the 2012 presidential race, and it easily surpasses the mathematically challenged nonsense passed off by some other GOP candidates. It should serve as a starting point for the 2016 Republican debate on governing priorities.
Bush borrows heavily from the recent work of Martin Feldstein, a Harvard economics professor and Ronald Reagan’s chief economics adviser. Feldstein has identified the country’s overgrown mess of a tax code as a vehicle for government spending that isn’t transparent and often isn’t particularly useful. Deductions, such as for mortgage interest, cost tens of billions of dollars every year, mostly to the benefit of the wealthy. Feldstein has proposed limiting the deductions Americans can claim, thereby bringing in more revenue, while offsetting that move with lower income-tax rates.
Bush embraces this logic. He would spare the deduction for charitable giving, but he would cut the deduction for state and local taxes entirely, and he would limit the value a tax filer could claim from every other itemized deduction, including mortgage interest, to 2 percent of adjusted gross income. He would then cut income-tax rates significantly, with the top rate falling from 39.6 percent to 28 percent. He also would eliminate the estate tax and Social Security taxes on working seniors, and he would increase tax credits for the working poor. For corporations, the top rate would fall from 35 percent to 20 percent, with added incentives for investment and reduced incentives for taking on debt.
Bush deserves credit for, among other things, naming real deductions he would eliminate or limit. His expansion of low-income tax credits is a long-overdue bipartisan reform that every candidate should champion. On the negative side of the ledger, his total elimination of the state and local tax deduction amounts to an attack on blue states; ending Social Security taxes on working seniors would help a lot of people who don’t need the assistance, and abolishing the estate tax makes no sense at a time of rising inequality.
There’s another, gigantic catch : Bush’s plan would reduce federal revenue — a lot. An analysis from Feldstein and three other economists estimates that, without accounting for any added economic growth the plan might spur, the tax scheme would lose the government an astonishing $3.4 trillion over 10 years. A “dynamic” analysis estimating the effects of added economic growth still predicts a loss of $1.2 trillion.
Feldstein and his colleagues suggest that this budget hole can be made up by cutting spending, and Bush’s campaign staff promises more proposals that will illuminate the whole picture. Yet the budget is already strained against strict spending caps. The impending rise in old-age costs promises to hollow out the government’s capability to do much of anything but send out Social Security checks and finance Medicare. The only feasible way to deal with this problem is to raise revenue, not lower it, and simultaneously reform big entitlement programs.
That wouldn’t be a popular thing to say in the midst of a Republican primary. But if Bush makes it to the general election — or the White House — it is the reality he will have to confront.
FROM AN EDITORIAL IN THE WASHINGTON POST