Some Republican presidential candidate was sure to come along with a credible tax reform plan to erase tax loopholes, preferences, and special breaks, broaden the tax base, and lower rates. Now Jeb Bush has done it. This marks a departure point in the GOP race.
The departure is likely to be a breakthrough for Jeb. He has gained a political asset his rivals lack: a sweeping tax proposal modeled on President Reagan’s 1986 reform, tested by history, and crafted to lift the economy out of the doldrums imposed by President Obama’s wrongheaded policies.
That’s a tall order. Indeed, there were significant doubts when the Reagan reforms were enacted. But the result was unequivocal. Along with Reagan’s tax cuts of 1981, tax reform produced a generation of economic growth and prosperity for individuals and businesses. Even President Clinton’s ill-advised tax hike in 1993 couldn’t slow its momentum.
For Bush, tax reform can revive a desultory campaign. His support has dipped to single digits in national polls. Bush says tax reform and the faster growth it would spur will lift the spirits of the nation. For now, it will be enough if it boosts the spirits of Bush and his supporters.
A big idea can do that, but not automatically. Bush will have to promote his proposal passionately in speeches, TV ads, and debates. He told me he hoped to talk about tax reform in last week’s candidate debate, but he merely alluded to it in his closing statement. He’ll have to do better in the next four debates.
His performance last week was an improvement over the first debate. He was upbeat. He was combative (but not harsh) in dealing with Donald Trump, his chief nemesis. He got off a few good lines. Trump did not succeed in bullying him. On the contrary, Bush won more clashes with Trump than he lost.
As his chief talking point, Bush has relied on his record as Florida governor, insisting he would rejuvenate the nation as he did Florida. That pitch fell flat. So the sooner he elevates tax reform to the top spot, the better. Presidential campaigns are about the future. His eight years as governor ended on January 2, 2007. That’s ancient history, politically speaking. Grassroots Republicans aren’t interested. His tax proposal is the future.
The other Republican candidates have their own tax plans, and they won’t sit still. Mike Huckabee favors the Fair Tax, a national sales tax. Marco Rubio has cosponsored with Senator Mike Lee of Utah a plan to cut the top tax rate to 35 percent on personal income and 25 percent on corporate profits. Both Ted Cruz and Rand Paul favor flat taxes. We’re waiting to hear from Trump on taxes.
All those plans are dwarfed by Bush’s. They aren’t as serious in one important sense: Their prospects of gaining sufficient support to pass Congress are nil. The only one with a remote chance of passage is Rubio’s. But the Bush plan is far more viable. It has Reagan written all over it. That means it’s slightly radical but attractive to voters.
Reagan cut the top income tax rate to 28 percent for individuals. Bush would do the same, dropping it from 39.6 percent. He would slash the corporate rate, currently the highest in the developed world at 35 percent, to 20 percent. By repealing Obamacare, Bush would let the tax rate on capital gains fall to 20 percent, along with the tax rate on dividends.
That’s not all for taxpayers. Tax brackets would be reduced from seven (10, 15, 25, 28, 33, 35, and 39.6 percent) to three (10, 25, and 28 percent). The standard deduction would increase by $10,000 for married filers and $5,000 for singles. Deductions would be capped at 2 percent of adjusted gross income.
While rewarding taxpayers, Bush is tough on wealthy investors. His proposal “seems to take a direct shot at the very people” who have donated millions to his super-PAC, wrote Andrew Ross Sorkin of the New York Times. Sorkin called this a “surprise.”
Bush would close the loophole on “carried interest,” which allows private equity and hedge funds to pay taxes at the lower capital gains rate, not the higher individual income rate. And in an effort to curb corporate borrowing, Bush would make interest costs nondeductible. “Mr. Bush is seeking to destroy an incentive for American companies to borrow money,” according to Sorkin.
The Reform and Growth Act of 2017—the title of the Bush plan—was developed with help from policy experts at the Hoover Institution at Stanford University. Bush met with a group assembled at Hoover by former secretary of state George Shultz in July.