The tax plan advanced by Republican presidential candidate Newt Gingrich would have the effect of adding over $1 trillion to the federal deficit in a single year and give the overwhelming share of tax benefits to those at the upper end of the income scale.
Newt Gingrich
A new analysis of Gingrich’s plan, published Tuesday by the Tax Policy Center, found that the top 0.1 percent of taxpayers, those making over $8 million a year, would get an average tax cut of $1.9 million under the plan by 2015. Low-income households, in contrast, would get an average tax cut of $63.
Under Gingrich’s plan, all taxpayers would have a choice between paying taxes under the current Tax Code or under an alternative system based on a 15 percent flat tax. Capital gains, dividends and interest income would not be taxed.
Taxpayers would be able to claim a standard exemption amount of $12,000 for each individual and dependent. The Gingrich plan would also eliminate the standard deduction and most itemized deductions and credits, but would preserve deductions for mortgage interest and charitable contributions along with the Child Tax Credit and Earned Income Tax Credit. Gingrich’s plan would also repeal the alternative minimum tax.
In terms of business taxes, the plan from the former Speaker of the House would reduce the corporate income tax rate from 35 to 12.5 percent, and permit full expensing of capital expenditures aside from residential rental housing and inventories.
The Tax Policy Center, which operates under the auspices of the Urban Institute and the Brookings Institution think tanks, estimates that the Gingrich plan would lower federal tax liability by $1.28 trillion in 2015 compared with current law, providing roughly a 35 percent cut in total projected revenue. Compared to a current policy baseline, the reduction in liability would be approximately $850 billion in 2015.
The analysis measures the change in tax liabilities against two alternative baselines: current law, which assumes that the 2001-2010 tax cuts all expire in 2013 as scheduled, and current policy, which assumes that the current law is permanent, except for the one-year payroll tax cut. “No one would experience a tax increase from the Gingrich plan under either baseline if they have the option of filing their tax returns under current policy,” said the report.
If taxpayers were required to file under the flat tax option and could not opt to remain under current tax law, revenues in 2015 would fall by about $1.25 trillion relative to a current law baseline and by about $830 billion relative to a current policy baseline.
5 Comments
How typical. So, the deficit is not a result of over spending?
I have a very simple plan to balance the budget. Cut. Cut. Cut. Cut government workers. Cut government programs. Cut departments. Cut the red tape.
Have a flat 9% tax on all income from whatever source derived.
The class warfare is just too much...
Posted by: ialvarez9 | December 15, 2011 3:26 PM
Report this Comment
Under Newt's tax plan, will business expense be considered a tax deduction? What will the sales tax be for new and used purchases of products? Will businesses have to charge a tax for services such as consulting?
Posted by: mtaylor4523 | December 15, 2011 9:03 AM
Report this Comment
Ted: I greatly appreciate your questions. My responses are below, preceded by two dashes.
On Wed, Dec 14, 2011 at 5:17 PM, ted leibowitz wrote:
Did you purposely leave out taxing dividends and K-1 income? -- No, they are covered by the "etc." in the following phrase: "All income from whatever source (e.g., wages and salaries, tips, rents, royalties, interest income, capital gains, etc.) would be subject to a federal flat tax of 8%." And can you define, perhaps restrict some deductions, from business and rental income. -- Due to the punctuation, I'm afraid I don't understand this question. Perhaps, you could rephrase it, and also suggest some examples of the "deductions" to which you refer. As you are well aware, real estate does not "usually" depreciate in value. And even then should only apply as a "loss" when sold, same way as other capital assets. -- I can't speak to tax law as it applies to the sale of real estate. But if such a sale generated "income" as "income" is defined by the IRS, then the income would be taxed as my proposal stipulates. And the *% figure seems arbitrary, same as Cain's and Gingrich's numbers, or do you plan on suggesting a National Sales Tax? -- No, no National Sales Tax. But you are correct that the *% figure is somewhat arbitrary, given that the nature of policy proposals such as mine begin with estimates that help to clarify the subject matter; these estimates, of course, may be changed later as the proposal is improved by comments from a wide range of reviewers (such as yourself). Just asking, at your request. -- And I'm glad you did. Many thanks. Norman Manasa
Posted by: nmanasa | December 14, 2011 5:08 PM
Report this Comment
To: Norman P. Manasa
Did you purposely leave out taxing dividends and K-1 income?
And can you define, perhaps restrict some deductions, from business and rental income.
As you are well aware, real estate does not "usually" depreciate in value. And even then should only apply as a "loss" when sold, same way as other capital assets.
And the *% figure seems arbitrary, same as Cain's and Gingrich's numbers, or do you plan on suggesting a National Sales Tax?
Just asking, at your request.
Posted by: tego@verizon.net | December 14, 2011 4:19 PM
Report this Comment
Norman P. Manasa Washington, D.C. Reply to: Norman.Manasa@gmail.com
Regardless of political philosophy, federal tax policy sooner or later gets down to the actual numbers: who pays and how much.
So here for comment is my "Proposal for Federal Tax Reform," which has the following major characteristics:
- All federal taxes on corporate profits would be abolished. (Corporations do not pay taxes; they collect taxes from their customers.)
- All federal tax deductions would be abolished, which would increase greatly the pool of funds subject to tax.
- All income from whatever source (e.g., wages and salaries, tips, rents, royalties, interest income, capital gains, etc.) would be subject to a federal flat tax of 8%.
- The first $30,000 of an individual's yearly income would be taxed at a rate of 1%. Income over $30,000 would be taxed at a rate of 8%. For example,
- If an individual earns $20,000 in a year, the federal tax would be $200 (i.e., $20,000 x 1% = $200).
- If an individual earns $40,000 in a year, the federal tax would be $1,100 (i.e., $30,000 x 1% + $10,000 x 8% = @1,100).
- The first $60,000 of the income of a married couple would be taxed at a rate of 1%. Income over $60,000 would be taxed at a rate of 8%. For example,
- If a married couple earns $50,000 in a year, the federal tax would be $500 (i.e., $50,000 x 1% = $500).
- If a married couple earns $80,000 in a year, the federal tax would be $2,200 (i.e., $60,000 x 1% + $20,000 x 8% = $2,200).
- The provisions of this "Proposal for Federal Tax Reform" would be put into effect in stages over a five-year period.
All comments are welcome and encouraged.
Copyright 2011 - Norman P. Manasa - All Rights Reserved.
Posted by: nmanasa | December 14, 2011 2:07 PM
Report this Comment
Add Your Comments...
Already Registered?
If you have already registered to Accounting Today, please use the form below to login. When completed you will immeditely be directed to post a comment.
Not Registered?
You must be registered to post a comment.