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The Candidates’ Income Tax Plans: Republicans

This article was written by in Taxes. 22 comments.


I started taking a look at the proposals for revision of the income tax code being tossed around by the latest presidential candidates yesterday. The Democrats are in favor of continuing the Bush administration’s tax cuts, but only for certain individuals. They also support a number of tax cuts that I’ll write about in the future.

Meanwhile, here are the Republicans’ thoughts on income tax.

Rudolph Giuliani wants to make the Bush tax cuts permanent and lower tax rates for corporations. He may consider lowering the marginal tax rates for individuals as well.

Mitt Romney, like Rudy, would write the existing tax cuts for individuals in stone and lower corporate taxes. He would like to drop the taxes on interest, dividends and capital gains for taxpayers with an income under $200,000.

John McCain would like to make the Bush tax cuts permanent and further simplify the tax code. McCain is considering removal of the Alternative Minimum Tax, which was originally designed to keep higher income individuals from avoiding a significant portion of what would otherwise be their tax bill. Thanks to inflation, more and more middle class individuals are caught paying the Alternative Minimum.

Fred Thompson would also like to keep the Bush tax cuts on the books and remove the Alternative Minimum Tax. He wants to lower corporate taxes and eliminate the estate tax. Thompson has also suggested giving tax payers a choice between typical tax rates and a somewhat “flat tax.”

Mike Huckabee wants to do away with the income tax and replace the system with a higher sales tax of 30%. Theoretically, the government would send checks to all taxpayers each month to reimburse them for a portion of these taxes to ensure that those who must spend close to their entire income aren’t unfairly burdened.

Your income taxes: What the candidates want [CNN Money]

Published or updated December 13, 2007. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 22 comments… read them below or add one }

avatar The Saving Freak

Mike Huckabee is proposing the Fair Tax. This would get rid of the current tax code all together and go to a national sales tax. Economically speaking this will be the best system (since it was developed by economists). It will also keep the government from meddling in our lives by shifting the tax code around.

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avatar Luke Landes ♦127,387 (Platinum)

Saving Freak: Thanks — I updated the post to include info on Huckabee. I don’t think that the idea will prevent the government from meddling, but it’s an option worthy of discussion.

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avatar Modern Worker

Kudos for putting this together. The more educate we are as a nation in voting, the better.

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avatar PK

This is excellent information that I was going to have to go dig up on my own. Now I’ll just link it ;)

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avatar George Donnelly

Uh, Ron Paul? I guess he’s not a top tier candidate so he doesn’t exist?

http://www.cato-at-liberty.org/2007/11/09/defending-ron-pauls-tax-plan/

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avatar Another Dollar

CNN is SOOOOO OFF its rocker! Huckabee is proposing the Fair Tax, which IS NOT 30%! It is 23%, and the embedded taxes in goods (accumulated through the entire value chain or production and distruction) are removed. It is a net difference in price of near 0%… and it may be cheaper, plus you have no federal taxes removed from your paycheck (income, social security, or medicare), so you have more money.

Smear away CNN!

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avatar Brian

Another Dollar,

While CNN definitely isn’t being clear, 30% is by no means “SOOOOO OFF”. The 23% FairTax is calculated as part of every $1 of register sale price, as opposed to traditional sales tax which is calculated *on top of* that dollar. In effect, the 23% “of” tax is similar to the effect a standard 30% sales tax would have.

This is readily admitted by FairTax proponents since following their calculations, this would still result in more spending ability of the consumer and fewer costs to the producer.

While there are many different perceptions of the FairTax, both for and against, the 30% sales-tax-parity is pretty commonly used.

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avatar Luke Landes ♦127,387 (Platinum)

Brian’s correct. If you compare the “fair tax” to a sales tax — which is what it is, an added amount to a purcahse price — we’re talking about 30%. If we talk about the net result, as in after paying your full purchase price including tax, the percentage that goes to the “fair tax,” we’re talking about 23%.

Pre-tax price: $100
Add the “fair tax:” $130
Result: 30% sales tax

Or look at it this way:
Full price paid: $130
Portion going to the government: $30
Portion of full price going to the government: 23%

Should be a fairly straightforward concept. 30% is correct because it follows how we’ve always discussed sales tax (and Ron Paul’s suggestion is a sales tax replacing an income tax). It’s unfortunate, because 23% sure sounds better.

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avatar Cory

All the “Fair Tax” system would do is shift the tax burden from the wealthy to the middle class. The “Fair Tax” is essentially a giant sales tax, and guess who spends most of their money? The middle class.

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avatar ear

I’m all for the fair tax system for a variety of reasons. I struggle every year to do my taxes every year and try my hardest to do them right and honestly but damn, moments after sending in those forms, I wonder if I’m going to jail because I did something wrong. Fair tax would also encourage people to slow down consumption and I believe be better for the environment. Site’s like ebay would explode (buy stock now just in case). Don’t quite get why it would shift the burden to the middle class. If everyone pays the same amount, how is it unfair? 30% on a luxury yacht would be more than you or I make in a decade or two.

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avatar Brian

ear, I definitely agree we need major tax reform. When most people pay someone else, or pay $30 for a program, just to lawfully follow the government’s rules, you know something is wrong.

However, I agree with Cory that the FairTax as it is written shifts the majority of “burden” to the middle class. Not necessarily the largest % of taxes from the govt’s point of view, but definitely the middle class would pay relatively more taxes.

Keep in mind that any tangible property is taxed. Your rent? Add 30% to it. Food? Your computer? Everything that is bought or sold is taxed.

As for the brunt being on middle class: Luckily, FairTax realizes that low-income families would starve with this model, so the gov’t will reimburse sales tax purchases up to the poverty level. However, keep in mind that the Federal poverty level is WAAY lower than the poverty limit in SF. For example, the minimum wage in SF is $9.17 compared to $7 or whatever it is federally. This means that the states would have to cough up the rest to keep previously-above-poverty families from starving.
The main thing keeping the focus on the middle class though is that investments, capital gains, estates, etc are all UNTAXED. This is where the upper class gets the huge break. Take your $10 mil, invest it tax-free for 10 years, and give it all to your kids taxfree. The phrase “coupon-clipper” actually came about in the 20′s to describe the well-off who did nothing with their lives or the economy except cash in on the interest in their parents’ estate. FairTax would return us to this.

There are a few other problems, such as the way this promotes an underground economy (the EU avoided this with the VAT by making it so retailers have no reason to hide sales…with FairTax a retailer and consumer would both be better off by pretending a sale never happened, thus shorting the gov’t money) and that there is no way of telling whether the federal government would achieve anything near revenue-equity.

Our current system is broken. No doubt. We need a simpler, easy-to-understand, beauracracy-thin solution. However I think the FairTax has too many weaknesses to be a viable solution.

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avatar Brian

On a side-note, Flexo, you had an ingenious idea bringing up political topics to create debate in the comments section.

This is a different rant for a different time, but I am saddened by the fact that something so important, so integral to the lives of every person in this country as the tax code is *still* split by party lines.

To everyone, please read the facts and don’t go based on party lines. Our children will thanks us :). (This wasn’t directed at anyone here, just a frustration in general)

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avatar David Mackey

Just wanted to add my 2 cents. I remove candidates from consideration based on certain moral issues (e.g. abortion, which I consider tantamount to murder). If the candidate supports such an action they lose my vote. It doesn’t matter how great they might be otherwise. I know some will consider me a single issue voter, but that isn’t the deal. Once I’ve trimmed off those who believe in something morally I find absolutely against my morals I then look at the positives for a candidate – one of which would include support of the Fair Tax. I’m a big fan of this system.

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avatar Andy2

Remember though when comparing the 30% (23%) Fair Tax with the income tax, if we calculated the income tax externally (like you do for the 30% sales tax, income taxes are would appear much higher than they are now. I know there are semantic issues, but it seems like to try and compare apples to apples, 23% is the number to look at to compare it to an income tax.

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avatar TheMightyQuinn

As for the Fairtax, you can run the numbers yourself (assuming you keep track of your spending) to see if you’d be better off under that plan.

Regardless, we don’t just need “tax reform”, we need a whole new system that would eliminate the wasted time and money simply to follow the tax laws, improve visibility of taxation, and spread the tax burden around.

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avatar Ian Hunter

WHOA THERE.

What the fairtax proposes is NOT a lot of things people say it is.

It is NOT a new tax.

It does NOT change the price of things.

It does NOT create a new revenue stream for the government.

It DOES do a lot of interesting things. Since lots of us (myself included) have had limited instruction in this area, there’s one thing I need to lead with…

EMBEDDED TAXES (VAT, etc.).

This is a fact of life: when companies that provide goods or services to individuals (“retail sales”), any burden placed on them (by government, etc.) is immediately factored into their price, because companies cannot arbitrarily “eat” fees imposed on them.

THE PART OF THIS YOU NEED TO UNDERSTAND is that there is a certain percentage of the price of everything you consume that results from taxation at some level. Today, in these United States, we think we pay nothing but STATE or COUNTY sales tax on items we purchase at retail; however, all the other taxes are “embedded” in the prices we pay.

You may pay $100 for a gizmo of some sort; if the state adds 7%, you pay $107 and leave the store with the gizmo.

You didn’t realize it, but you paid $22 in Federal Taxes. Cool, huh?

WHAT?!?!? You didn’t know that? Wow. Here’s how that works:

1. A certain amount goes to pay “corporate” taxes.
2. A certain amount goes to pay attorneys who advise the corporation who produced said item.
3, A certain amount goes to pay attorneys who advise the corporation who produced all the materials needed to produce the item.
3. A certain amount goes to pay accountants to track taxes.
4. A certain ammount pays different accountants to track profits, and therefore taxable items.
etc. etc. etc.

All of that adds up to around 22% for your average retail item.

OK. GREAT. Got that? (WSJ editors, take note!) — If not, back up, everything following relies on the preceding bits. They’re actually quite important.

SO. We all pay a 22% surcharge on retail items that we can’t see today. It’s there, and the moeny collected goes to the Federal Government in some form or other. This is a “true” statement. Try to rip it apart. Have fun.

NOW THEN. What the FairTax does is MOVE (not reduce) that price from being embedded in the price “secretly” to being a standard part of all our retail bill.

Example:

Let’s say that today, you pay $100 (+ 7% state sales tax = $107) for an item. Even if you didn’t realize it, that included a net Federal Tax burden of $22 (22% of $100, see above). Total tax burden = $7 + $22 = $29. Retail price with taxes – $107 – $29 = (subtract the taxes) and the item “really cost” $78.

Again, WHOA THERE. PAY ATTENTION. That means, you paid $107 total for a purchase, and $78 was the cost of the item, $18 was the FEDERAL Tax, and $7 was the STATE sales tax.

Under the FairTax, the Federal Taxes would be embedded in the retail price of the item — so an item “costing” $78 would have a retail price of $100, which INCLUDES the 23% FairTax. READ THAT SENTENCE CAREFULLY. NO REALLY. UNDERSTAND THAT.

If states wanted to add a sales tax, fine, whatever, 100 * 1.07 = $107, net = SAME PRICE.

The FairTax stops taxation along the line of production of goods and services and addes them back at point of sales. IT’S REVENUE NEUTRAL. PRICES WILL NOT CHANGE. This is not rocket science.

The other key component of the FairTax is that as a result, there would be NO CORPORATE PAYROLL TAXES. READ THAT SENTENCE CAREFULLLY. If you get paid $20 an hour, guess how much you take home if you work $40 hours… 20 * 40 = $800. That’s your check, NO DEDUCTIONS. Really.

No crazy math there, eh?

You get to pay your taxes at point of sales, and they’re right there in black and white.

Now please, someone tell me how this is not fair, or how it doesn’t make sense.

???

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avatar oxymoron

I don’t know how many accountants and tax attorneys there are in the US. But if “Fair Tax via sales tax” went into effect that industry would be decemated. No way an entire sector (comprised mostly of lawyers) would ever let that happen. The US tax code is here to stay. The complete Internal Revenue Code is more than 24 megabytes in length, and contains more than 3.4 million words; printed 60 lines to the page, it would fill more than 7500 letter-size pages. {source is http://www.fourmilab.ch/ustax/ustax.html}
Something this large and comprehensive will not, and can never be stopped nor changed buy a president. Over 80% of the tax code does not effect the average working joe or josephene. If we apply the “golden rule”; those with the gold rule then we can easily come up with “it is what it is” and it will NOT change for 80% of us that live our lives, work hard , pay our bills, and try to get ahead. Be true to yourselves and make the best life you can for you and your family and it will pay off in the end!

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avatar Another Dollar

Uh, where are you guys getting this nonsense about 30% tax? Brian and Flexo are both way off base. It is a 23% tax, period, just like traditional sales taxes.

If a good is $100, then the Fair Tax is $23, and the total price is $123.

And no, Fair Tax proponents are not freely admitting what you are stating Brian; they have been refuting this misinformation from day one.

The concept of eliminating the accounting industry is also false. Accountants do a lot more than just taxes. They would actually be doing things that are more productive… rather than keeping a non-productive industry around for the sake of keeping some people employed. Sounds ridiculously Socialist, if you ask me.

What the problem is that people don’t like about the Fair Tax is that it removes all of these social engineering tools that people that enjoy being waist deep in other people’s business like; and that’s the honest truth.

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avatar ear

“If a good is $100, then the Fair Tax is $23, and the total price is $123.”

Kinda, from my understanding you still have state taxes on top of that.

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avatar Luke Landes ♦127,387 (Platinum)

Another Dollar: You are incorrect about the calculation of the tax. The tax rate of 23% is the *tax-inclusive* rate. If you pay the full price, *including tax* of $130, then 23% of THAT amount, or $30, goes to the government and is the tax amount. This is explained on the FairTax.org website’s FAQ page.

The *tax-exclusive rate* is 30%, which is the rate you would use when comparing the FairTax to a sales tax. An $100 item has a tax “added on” of 30%, hence the total $130. A tax-exclusive (like sales tax) rate of 30% corresponds with a tax-inclusive (like income tax) rate of 23%.

FairTax talks about the rate as if the item price includes the tax already. Again, this is all explained on the FairTax.org website.

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avatar Another Dollar

Flexo,

I have to backtrack and concede to you on this one. It certainly is 30%, if you look at it from a tax-exclusive rate.

However, it is still a good deal. The income tax works the exact same way. Say let’s assume that you have an effective tax rate of 15%. On $100, you pay $15 in taxes and keep $85. If you switch it around and look at it as a tax-exclusive rate, it is actually 17.65%.

In any event, the cost of goods remains the same, and everyone keep their full paycheck, disregarding state/local for simplicity.

I guess the point is that every single argument that people make against the Fair Tax is easily mitigated by looking at our current tax code. It is confusing, and with the Fair Tax it is simple. And with the cost-of-living prebate, the poor pay absolutely no taxes up to the cost-of-living… when even today they pay the “embedded” taxes on goods. As for issues stating, “…but you still have state taxes…,” we have to deal with state taxes today, too, so it is a non-issue.

Basically, it is a way of transforming the VAT into a transparent single point of taxation that will boost the economy.

The Fair Tax, as proposed, is a revenue neutral method to replace existing tax revenues at current rates of consumption. In reality, since disposable income increases along with the average propensity to spend and save, we would, in practice, be able to shift the rate downward because of the significant boost to the economy.

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avatar mwulf

There is one area in which idealistic assumptions are being made that I do not think will work out to be that way in real life, at least in initial years, if the fair tax is implemented. It is assumed that since internal/ invisible value added and accountancy related costs and effective current taxes to manufactures and retailers would be “eliminated” from the production chain and that this savings would naturally be passed on to the consumer on a dollar by dollar basis. Even if all that money is saved by the seller and makers of goods, knowing the business and especcially retailer mindset, I think in reality a firm that sells widgets for an established market price $100.00 but finds that it costs $25.00 less per unit to produce would probalbly still continue to sell it for about $100.00, per hps dropping the ostensible price just a little because the price is established in the market and the buyer can just grumble about the added “fair tax”. It will take time, (years) inflation and competition of competitive pricing to erode those prices to the point that the fair tax effect really approxiamately equalizes with the previos cost of the product. I don’t see immeadite parity in current prices and prices after fair tax, but I am not againstthe fair tax idea. I’m just predicting my own realitey check about what is reasonable to expect versus the ideal that is projected about the tax.

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