Tax Plans: Jeb Bush vs. Marco Rubio
October 12, 2015
At the heart of Jeb Bush’s bold promise for 4% economic growth is a tax plan that largely reduces taxes for all individuals and corporations, while also eliminating some loopholes that benefit the wealthy.
Bush’s plan includes several proposals that virtually all GOP members agree on, including lowering tax rates and eliminating certain taxes, like the estate tax and the alternative minimum tax, altogether.
Bush’s proposal for reducing and simplifying the tax code roughly resembles Mitt Romney’s from 2012. Bush proposes to consolidate the current 7 tax brackets into three. Under his plan, the lowest income earners – individuals who make $0–$43,700 and couples who make $0–$87,500 – would pay a 10 percent rate. The highest income earners - individuals who make $97,751 or more and couples who make $163,801 or more – would pay a 28 percent rate.
Bush largely deals with the corporate income tax in the same way as the individual income tax. He proposes to cut the top corporate tax rate from 35 percent to 20 percent. In addition, Bush also wants to adopt a “territorial” taxation scheme, which would allow U.S.-based multinational corporations to avoid U.S. taxes on profits earned overseas.
Overall – for individuals and for corporations – Bush’s plan is a sharp reduction in taxes. According to the Tax Foundation, Bush’s plan would reduce federal revenue by more than $3 trillion over ten years, largely caused by the significant reduction in the individual tax rates. While Bush argues that these tax reductions would spur economic growth, and thus lead to more revenue, projections for economic growth remain uncertain and difficult to predict. Famously, Jeb’s older brother George promised that his tax cuts would pay for themselves by spurring economic growth – a claim that turned out to be highly inaccurate.
Nonetheless, the plan does include proposals that would increase federal revenue. Bush would eliminate the carried-interest loophole, which allows hedge fund managers to pay lower tax rates on income from their investments. In addition, Bush also proposes a cap in deductions for high earners, not including charitable deductions. Interestingly, President Obama agrees with Bush on both of these tax-increasing proposals.
At the same time, Bush’s plan includes policy changes specifically to help the working poor. For example, Bush proposes to expand the earned income tax credit, which would provide more tax refunds to lower-income workers.
Overall, Bush’s tax plan represents that of a moderate, establishment-backed Republican: reduce and simplify taxes, eliminate some loopholes, and predict economic growth.
Marco Rubio rides on a tax plan that doesn’t merely slash tax rates as many Republicans tend to do. He plans to utilize the tax code to reward families with children and appeal to the middle class. He also pledges to keep a top tax rate of personal income of 35%, much higher than many Republicans would agree with.
Rubio’s tax plan reduces our current six income tax brackets to only two, 15% and 35%. With these two brackets, half of taxpaying citizens would see their tax bills rise and other half would see them fall. For example, the nation’s poorest who would have been paying 10% would now pay 15% and some of the middle-class who were paying 25% would now pay 15%(VOX). Rubio’s plan also creates a new child tax credit worth $2,500. Many economists approve of this plan because of the tax reforms meant to reward parents. Economists believe that these tax reforms are more effective now that rates have gotten so low. Reform conservatives argue that the growing body of Social Security and Welfare lowers the incentive for people to have children because of a lower need for economic security in old age. They also argue that there is a “Parent Tax Penalty” in that parents pay more into the tax system by paying their payroll taxes while providing for a child who will later also pay into the entitlement system.
One of Rubio’s main goals in his tax plan is to incentivize investment. His tax plan would decrease the corporate tax rate from 35% to 25%, remove double taxation for all business income, and allow firms to deduct 100% of expenses. Rubio’s tax plan pledges that companies who are actively investing would receive better tax treatment, while those who are not would receive worse.
The tax plan would also implement the creation of a territorial tax system. Through a transition to an international dividend exemption system, Rubio hopes to lower the barriers for businesses to expand abroad while remaining headquartered in the U.S. In order to do so, Rubio would only tax “U.S. domiciled businesses and their subsidiaries in the country where their income is genuinely earned”.
(Image: Rubio-Lee tax plan’s impact on the Federal Debt Source: Tax Foundation)
It’s important to note that Rubio makes no claims that his plan would not increase the deficit. Analysis by the Tax Foundation found that his plan would increment the current $18 trillion debt by $4 trillion over ten years. To put this into perspective, George W. Bush’s tax cut cost $1.35 trillion over 10 years. Advocates of Rubio’s tax plan argue that the resulting growth in the economy would pay for the immense losses in tax revenue. The Tax Foundation, in particular, claims that the plan would result in a growth of economy by 15% and increase revenue by $94 billion per year. Despite these claims, the Tax Policy Center’s William Gale adds that instituting a flat tax rate would increase GDP by 4%, thus Rubio’s less dramatic tax change could not realistically increase growth by 15%. The Tax Foundation’s Kyle Pomerleau also argues that “it would likely take more than 25 years to start decreasing the debt from its current point,” “assuming that no other spending or tax policies change over this long period of time.”
Rubio sets himself apart from his opponents by speaking to the issue of income inequality that many republicans choose to neglect. His plan allows for direct immediate tax relief for families, sweeping corporate tax reform, and pursues an approach typically associated with Democrats. However, the issue with Rubio’s $2,500-per-child tax credit is that it leaves out some of the nation’s poorest families. Those with no income tax burden and a payroll tax bill under $2,500 won’t benefit and will end up paying more in taxes than before. The tax plan also allows the expansion of the child tax credit to expire. This expansion had reduced the minimum income a family had to earn to qualify for the credit from $14,700 to $3,000.
Rubio calls for a pro-family, pro-growth party. However, placed aside Ted Cruz and Rand Paul, Rubio’s tax plan could come across to Republican voters as too timid and out of step with the rest of the GOP candidates. To moderates, however, this unique plan is alluring to many. Rubio rebuts the image of Republicans only caring about reducing taxes on the wealthy by implementing tax policies that primarily serve middle class families. Democrats on the other hand, look at Rubio with fear. He has the potential to capture moderates and, many believe, is Hillary Clinton’s strongest competitor in the 2016 presidential race.
Pomerleau, Kyle. “Presidential Hopeful Marco Rubio Already Has a Tax Plan.” Tax Foundation. N.p., 14 Apr. 2015. Web. 07 Oct. 2015. .
White, Ben. “Rubio Tax Plan Challenges GOP Orthodoxy.” POLITICO. N.p., 4 Sept. 2015. Web. 07 Oct. 2015.
Rubio, Marco. “Economic Growth and Family Fairness Tax Reform Plan.” N.p., n.d. Web. 7 Oct. 2015.
Schuyler, Michael, and William McBride. “The Economic Effects of the Rubio-Lee Tax Reform Plan.” Tax Foundation. N.p., 9 Mar. 2015. Web. 07 Oct. 2015. .
Matthews, Dylan. “Marco Rubio and Mike Lee’s Tax Plan Is Dividing Conservatives. Here’s Why.” Vox. N.p., 07 Aug. 2015. Web. 07 Oct. 2015.
Additional Blog Posts
Student Blog Disclaimer
The views expressed on the Student Blog are the author’s opinions and don’t necessarily represent the Penn Wharton Public Policy Initiative’s strategies, recommendations, or opinions.