The tax plans of the Republican presidential candidates would cut federal revenues as much as $12 trillion over a decade, a post-World War II record eclipsing the deep tax cuts of George W. Bush, Ronald Reagan and John F. Kennedy. And they would come just as America faces the costs of its aging baby-boom generation.
The combination of the tax cuts’ size and timing has many tax and budget policy analysts questioning their viability. The Republican rivals routinely denounce the current $14 trillion debt, but none has said how he would offset the revenues lost to his tax cuts, beyond unspecified cuts to domestic programs and repeals of some existing tax breaks.
Each candidate has said his tax cuts are needed to promote work, saving, investment and faster economic growth.
“I believe by cutting taxes and simplifying the tax code, we will grow our economy and create more taxpayers rather than more taxes,” Sen. Marco Rubio of Florida has said.
Tax policy groups agree generally, but only if the revenue losses are offset by budget savings that avoid piling up more debt that would be counterproductive to spurring the economy.
“The candidates need to present real specifics for how they would address our record levels of debt,” said Maya MacGuineas, the president of the bipartisan Committee for a Responsible Federal Budget.
“Massive tax cuts and few specifics for what spending to reduce will only make the challenges much worse,” she added. “And miraculous growth projections and ‘waste, fraud and abuse’ are just not credible solutions.”
Enormous cuts benefit richest
Also, at a time when many Americans lament the growing gap between rich and poor — and the shrinking middle class in between — the Republicans’ plans would mostly benefit the richest individuals and corporations, according to analyses by research groups that lean left, right and center.
What is indisputable is the sheer size of the proposed tax cuts. The four most detailed proposals would easily eclipse the reductions under Presidents Bush, Reagan and Kennedy, compared with the size of the economy.
“The 2016 primary contenders make those guys look like pikers,” said economist Leonard Burman, the director of the nonpartisan Tax Policy Center in Washington and a Treasury official in the Reagan and Clinton administrations.
Costliest plan is Trump’s
The center, using historical data from the Treasury Department, put the Kennedy tax cuts at 1.6 percent of gross domestic product, the net Reagan reductions at 2.1 percent and the Bush cuts at 1.4 percent. Rubio’s tax cuts would equal 2.6 percent of the total economy, according to the Tax Policy Center, while those of Sen. Ted Cruz of Texas would be 3.6 percent and the tax cuts proposed by Donald J. Trump would be 4 percent.
By most estimates of the outside groups, the costliest plan is Trump’s. His proposed cuts could mean about $12 trillion less in federal revenue in the first 10 years after they took effect — a figure on which both a liberal tax policy group, Citizens for Tax Justice, and a conservative-leaning one, the Tax Foundation, agree. That would be more than a quarter of the $46.5 trillion in total revenues that President Barack Obama’s new budget projects over 10 years.
“It’ll simplify the tax code. It’ll grow the American economy at a level that it hasn’t seen for decades,” Trump said in September, dismissing any concerns over cost.
Cruz, Trump plans tougher on revenue
Citizens for Tax Justice says Rubio’s tax cuts would cost nearly as much as Trump’s, while those espoused by Cruz would reduce federal revenue the most of all — $16.2 trillion over a decade, or more than one-third of anticipated revenues.
The Tax Policy Center, a joint research effort of the Brookings Institution and the Urban Institute, estimates the Trump plan would lower revenues the most, $9.5 trillion over 10 years, followed by Cruz’s plan ($8.6 trillion) and the Rubio proposal ($6.8 trillion).
Even the least of the loss estimates would mean a cost of nearly $4 trillion over the first decade — the price tag that the Tax Foundation put on the Cruz plan. Gov. John Kasich of Ohio and Ben Carson, a retired neurosurgeon, also have proposed deep tax cuts, but without enough detail for many economists to analyze in depth.
'Adverse impact on the economy'
The Tax Foundation has separate estimates showing that all the Republican plans would have lower budgetary losses if the economic growth they would spark was counted in the cost.
However, “we assume that the tax cuts are appropriately financed by, for example, spending reductions,” said Kyle E. Pomerleau, the director of federal projects at the Tax Foundation. “It is certainly the case that having significant deficits well into the future would have an adverse impact on the economy.”
Bidding wars on tax cuts among presidential candidates are nothing new, but the timing of the 2016 campaign is distinctive: The oldest baby boomers have reached retirement age and are now drawing benefits from Medicare, Social Security and, in many cases, Medicaid. This is making real a demographic and fiscal reckoning that economists have long projected would drive federal debt to unsustainable levels in the next decades.
Unlike 'anything we’ve done in the past'
After the Tax Policy Center released its analysis for the Cruz plan last week, after those for the Trump and Rubio proposals, economists there spoke to the common threads linking the Republican tax proposals. (The center also analyzed the tax plan of former Gov. Jeb Bush of Florida, who left the race Saturday.)
“One, they are enormous tax cuts relative to anything we’ve done in the past,” said William Gale, an economist at Brookings. “Two, the candidates don’t specify how they’re going to pay for these tax cuts.” He added, “And three, they are hugely regressive” — that is, the higher a person’s income, the bigger the tax cuts that taxpayer would receive, both in dollars and as a percentage of income.
If the candidates “ever do get around to specifying how they’re going to pay for the tax cuts,” Gale added, the budget savings are “going to come from low- and middle-income households” because those Americans benefit more than the rich from the government’s domestic spending programs.
Scrapping the income tax system
What the Cruz and Rubio proposals also have in common is that, to varying degrees, they would shift from the century-old progressive income tax system — which generally taxes wages and investments at rates that increase with taxpayers’ income — to one focused on taxing consumption, and exempting investment income including dividends, capital gains and interest on savings. Cruz proposes both a 10 percent flat tax and a 16 percent consumption tax similar to a European-style value-added tax.
Many economists favor consumption taxes over income taxes because they provide incentives to save and invest. But critics counter that consumption taxes fall harder on lower-income wage earners, who can save little.
Most of the Republican plans would also repeal estate and gift taxes, the alternative minimum tax and taxes on the rich that Obama signed into law to finance his health care law. Those changes, and lower tax rates, explain why the wealthiest taxpayers would see significantly bigger tax cuts than most Americans under the proposals.
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