Click here to listen to Andy discuss his plan with radio host Kevin Wall.
Taxes — on America’s individuals and businesses — are too high, and the American people are suffering as a result.
Presidents from John F. Kennedy to Ronald Reagan understood that high taxes stifle job creation and limit economic growth. That’s why both made it a top priority to enact across-the-board cuts to tax rates, and that is exactly what we need to do to rejuvenate our economy today. Unfortunately, President Obama has taken the opposite approach, and his crippling tax hikes are a chief reason why America’s recovery from the Great Recession has been the worst in our history.
What we need today is fundamental tax reform — lower tax rates that would provide powerful incentives for savings, investment, job creation, business formation, business expansion, work and entrepreneurship.
As a cornerstone of my campaign, I’m proposing a sweeping tax-reform package that would provide the foundation for dramatic economic growth and job creation. Under this plan:
- The current federal personal income tax code would be simplified to just two rates, 15 percent on the first $118,500 in family income (the maximum taxable income for the Social Security payroll tax), and 25 percent on income above that level.
- The Social Security maximum taxable income would remain indexed to increase with average wages over the years, meaning that 90 percent of workers would remain taxed at the 15 percent rate.
- The standard deduction would increase to $13,200 for each adult and child in the family, while the Earned Income Tax Credit for singles or families without children would increase from $506 per year today to $850 per year, and the credit for all other family combinations with one or more children would go up by $850 as well.
- The child tax credit, charitable deduction and home mortgage interest deduction would remain unchanged compared to current law.
- The estate tax (also known as the “death tax”) as well as the alternative minimum tax would be eliminated entirely.
- The federal corporate tax rate would be reduced to 15 percent (resulting in an average of about 20 percent when state taxes are included), which is a globally competitive rate.
- That same 15 percent rate would apply to capital gains, dividends and all other forms of pass-through business income.
- Plant and equipment costs, and those of all other capital investments, would be subject to immediate expensing, i.e. deductions, as with every other business expense. That would replace arbitrary depreciation, extending the deduction of capital investment over seven to 30 years in general.
- Corporate welfare, special-interest tax credits and deductions — in other words, crony capitalism — allowed under the current corporate income tax would be ended.
The Tax Foundation, one of the country’s most reputable think tanks, has scored this proposal on a dynamic basis as a tax cut of $3.2 trillion over 10 years, including $126 billion in the 10th year, providing a tax cut for all workers at all income levels.
The Tax Foundation projects that the plan would produce enormous benefits throughout the economy. It would:
- increase GDP by 13 percent, or $2.3 trillion
- create 4.6 million new jobs
- raise workers’ wages by nearly 9 percent
- increase capital investment by 36 percent
- increase family incomes by an average of 15.7 percent, with substantial gains at every income level
Why America needs this plan
President Ronald Reagan’s 1981 tax cut and 1986 tax reform provided the foundation for 25 years of booming economic growth from late 1982 to late 2007. Indeed, economists Art Laffer and Steve Moore, in their 2008 book The End of Prosperity (which foresaw the dismal Obama years), called this 25-year boom “the greatest period of wealth creation in the history of the planet.” More wealth and income were created in America during that 25-year boom than in all previous American history combined — all the way back to George Washington’s presidency.
My plan draws on the same principles that inspired Reagan’s agenda, and indeed goes even further. The plan would scrap the current federal income tax code entirely, and replace it with just two rates — 15 percent on the first $118,500 in income each year, and 25 percent on income above that level. Those rates would be even lower than those achieved under President Reagan.
The $118,500 threshold at which the 25 percent rate kicks in is equal to the Social Security maximum taxable income, where the 12.4 percent Social Security payroll tax drops off. That maximum taxable income for Social Security is automatically indexed under current law to increase at the rate of growth of average income among all workers, meaning about 90 percent of all workers would pay the 15 percent income tax rate, continuing into the future.
Also, the standard deduction would increase to $13,200 for each adult and child in the family, as Steve Forbes proposes in his flat-tax plan. That means a family of four would pay no federal income taxes on the first $52,800 in family income.
The Earned Income Tax Credit for singles or families without children would increase from $506 per year today to $850 per year, and the credit for all other family combinations with one or more children would go up by $850 as well. The child tax credit, charitable deduction and home mortgage interest deduction would remain unchanged compared to current law.
In addition, the deeply unfair estate tax (also known as the “death tax”) as well as the alternative minimum tax would be eliminated entirely.
In short, this plan offers significant tax relief to Americans all across the economic spectrum — at a time when such relief is badly needed.
Corporate tax reform is needed as well. American companies and their workers currently suffer under the highest corporate income tax rates in the developed world, with a 35 percent federal rate and state corporate rates that average 5 percent, amounting to a total tax burden of about 40 percent. That leaves American companies at a steep disadvantage in the global economy, with foreign corporate rates ranging from 12.5 percent in Ireland, to 15 percent in Canada, to 20-25 percent on average in the European Union. America’s globally uncompetitive tax rates discourage capital investment in new and existing American companies, which is the foundation for job creation and wage increases.
Moreover, American companies with income earned overseas are subject to double taxation on that income, from the American corporate income tax on top of the taxes imposed by the foreign countries where the income is earned. American companies consequently are holding more than $2 trillion offshore in foreign accounts, to avoid double taxation under America’s sky-high rates.
These prohibitive corporate income taxes discourage capital investment in American companies at home and from abroad. Instead, our high tax rates encourage capital flight from the U.S., as American companies are increasingly merging into foreign companies and leaving America altogether, in what are called “inversions.” Such inversions leave American companies merged into, and operating under, foreign companies.
Studies show that about 80 percent of corporate income taxes are actually borne by workers in the form of reduced wages, so worker pay is lower than it would be without the tax. This is why countries around the world have lowered their corporate tax rates so much, gaining a competitive advantage over American companies.
My tax-reform plan proposes to lower the federal corporate tax rate to 15 percent, producing an average total of 20 percent when state corporate rates are included, which is about half the current rate. This would make American companies fully competitive in the global economy.
This reform plan would also end all corporate welfare, special-interest tax credits and deductions — a.k.a. crony capitalism — allowed under the current corporate income tax structure. However, the plan proposes immediate expensing, meaning deductions, for plant and equipment costs and those of all other capital investment, as with every other business expense. That would replace arbitrary depreciation, extending the deduction of capital investment over seven to 30 years in general.
This will promote investment in the latest tools and increase worker productivity, which is the foundation of rising wages, and create well-paying, blue-collar jobs in heavy industry, mining, energy, farming, ranching, manufacturing and other related fields. The plan also adopts territoriality, which leaves foreign income to American companies taxed only in the country where it is earned, which is the practice in virtually all other countries today.
Finally, the 15 percent corporate rate would also apply to capital gains, dividends and all other forms of individual business income, including pass-through income from sole proprietorships, partnerships and Subchapter S corporations.
What will be the impact of this plan? The Tax Foundation has scored the plan on a dynamic basis (counting for economic effects) and projects it would increase GDP by 13 percent, or $2.3 trillion. In addition, the plan would create 4.6 million new jobs and raise workers’ wages by nearly 9 percent, with capital investment soaring by 36 percent. Family incomes would increase by 15.7 percent on average, with substantial gains at every income level.
On a dynamic basis, my plan amounts to a tax cut of $3.2 trillion over 10 years, including $126 billion in the 10th year, and would provide a tax cut for all workers at all income levels.
This kind of bold, broad tax reform is needed now more than ever. Hard-working Americans, and the companies that employ them, have suffered for far too long in the Barack Obama economy. Others are even less fortunate — millions of Americans are out of work, and businesses all across the country have been forced to shut their doors altogether.
The sweeping tax relief I have proposed is a crucial first step toward getting America back on the path to booming job creation, widespread prosperity — and a brighter economic future.