A new analysis of Jeb Bush’s plan to cut most Americans’ tax bills would end up blowing a moon-sized deficit hole into the federal budget with the shortfall reaching $8.1 trillion in the first 10 years.
Although Mr. Bush has promised to slash government spending to make up for the lost revenue, the analysis, released on Tuesday by the Tax Policy Center, a joint initiative from the Brookings Institution and the Urban Center, concludes that cuts of such magnitude could only be accomplished through sizable – and unpopular — reductions in Social Security, Medicaid and Medicare benefits. Without such “politically infeasible” cuts, the staggering debt would swamp any positive effects that lower tax rates and other features might otherwise have on savings, work and investment.
The glowing promise that the tax cuts would spur so much growth as to make up for any losses is the stuff that dreams are made of, the report concludes.
The sheer size of the revenue loss was the biggest surprise, said Len Burman, co-director of the Tax Policy Center, who said of the Bush plan that there are a “lot of really good ideas but the numbers don’t seem to add up.”
As Mr. Bush has struggled to gain traction in the crowded Republican field, he has positioned himself as the “serious,” policy-focused candidate compared to his competitors. His detailed tax plan, released in September, was part of that effort. And it is that very seriousness, Mr. Burman said, that caused the Tax Policy Center to choose it as the subject of its first candidate analysis.
The main outlines of the plan have already released. But the big, knotty questions that persist about this plan and every other go beyond the effect on the check individuals and businesses might write to the Internal Revenue Service in April. How will the changes influence whether individuals decide to work more and spend less? How will they affect the countless decisions that businesses make every day? Will they help improve the economy or dampen its progress?
This new analysis tries to shed some more light on those questions with the help of a complex model. The Tax Policy Center found bigger revenue losses ($6.8 trillion) than a conservative Tax Foundation analysis and smaller than one by the more liberal Citizens for Tax Justice. That $6.8 trillion hole grows to more than $8 trillion when the added interest costs are added in, however. And the new report warned that the amount of government borrowing could also drive up interest rates and swallow up money sought by private investors.
The reason that promises to cut spending seem hollow is that the report points out that the amount of lost revenue from the tax reforms add up to more than the projected cost of all discretionary spending in 2026.
On the individual income tax side, Mr. Bush has said he would replace the current seven tax brackets with just three; lower the top marginal rate from 39.6 percent to 28 percent; eliminate estate taxes altogether; significantly increase the standardized deduction; end the deduction for state and local taxes; and eliminate the alternative minimum tax, among other things.
Most everyone would end up with a lower tax bill, but the largest share of the gains would go to the wealthiest. The top sliver of taxpayers – the top 0.1 percent – would enjoy an average tax cut of more than $800,000 in 2017, worth about 12 percent of their after-tax income. The average tax cut for most Americans would amount to $2,800, or 3.9 percent of their income.
Since government spending tends to disproportionately benefit those in the lower and middle-income levels, however, the deep cuts that would be required, the report said, could end up outweighing the tax savings in some cases.
http://www.nytimes.com/politics/first-draft/2015/12/08/jeb-bushs-tax-plan-would-cause-8-1-trillion-budget-hole-analysis-finds/
