Revenue Neutrality: Taxing Peter to Give
Tax Cuts to Paul?
June 21, 2005
By Chris Atkins
When President Bush created his Advisory Panel on Federal Tax Reform, he required that any proposal crafted by these experts must be “revenue neutral” – meaning, the new tax system must raise the same amount of tax revenue as the old system.
Considering the size of the federal deficit and his plan to reform Social Security, this is an understandable goal. But, this restriction opens the door to many bad tax policies, where politically powerful groups will get lower taxes that have to be made up by raising other people’s taxes — robbing Peter to pay Paul. As we’ll see, this type of redistributionist reform plan is very popular in the states – especially among Republican Governors, who want credit for reforming their tax systems without violating their pledge not to “raise taxes.”
We should start from the premise that a good tax code, whether at the federal or state level, distributes the tax burden evenly throughout the economy, leaving all redistributionist policies to the spending side. The tax code should simply be a means of raising sufficient monies to fund government programs, not a tool for social engineering or political patronage. Thus, the goal of tax reform is to make the tax code simple, fair, and economically efficient by getting rid of all the special tax breaks and applying the lowest possible tax rate on the widest possible tax base. In other words, “plucking the goose as to obtain the largest possible amount of feathers with the smallest amount of hissing” as Jean Baptiste Colbert wrote some 250 years ago.
Unfortunately, our federal and state tax codes are so far from this ideal that true tax reform will require shifting the tax burden considerably, creating lots of winners and losers. That’s why it’s so politically difficult, but the rewards in economic prosperity are worth the pain. And the pain in this case would distribute the tax burden in a more economically efficient way, allow the private economy to create jobs more easily, boost earnings, and promote savings and investment.
Sadly, many states are actually moving away from this ideal with proposals that shift the tax burden to politically unpopular constituents such as smokers or “big business.”
For example, the Texas House of Representatives recently passed a bill that would cut local property taxes but increase state sales and corporate taxes so as to make the plan revenue neutral. The problem, they say, is that property taxes are too high. That may well be true, but raising taxes on consumers and businesses does not right the wrong.
Indiana lawmakers pulled the same trick a few years ago, raising the state sales tax to provide local property tax relief. This is not tax reform (there’s another word for it: redistribution) and it merely shifts the tax burden from property owners to consumers and businesses.
Kentucky Governor Ernie Fletcher recently signed a major piece of tax legislation that repealed the state’s corporate license tax, reduced the tax rates on personal and corporate income, and enacted a new low-income tax credit. Sounds good so far. But to make the plan revenue neutral, he also raised taxes on cigarettes and other tobacco products, and made a host of changes to the corporate income tax law that amount to a tax hike. These new measures actually make Kentucky less attractive to business investment. From an accounting perspective, the plan was “revenue neutral.” As a reform plan, however, it did little to address the complexity or efficiency of Kentucky’s tax system.
Governor Bob Taft in Ohio is pushing his version of tax reform. Taft’s plan, contained in Ohio House Bill 1 and Senate Bill 1, would lower personal income taxes, eliminate some business taxes, raise the state sales tax rate, institute a new commercial activity tax on business gross receipts, and raise a host of state excise taxes. While it’s admirable that Taft wants to make the state’s tax code more “competitive”, the insistence on revenue neutrality will be counterproductive to the Governor’s goal.
The Kentucky and Ohio plans illustrate one of the worst aspects of so-called state tax reform: the shift from broad-based to narrow-based taxes. Both Fletcher and Taft’s plans lower income taxes while raising excise taxes on things like cigarettes and alcohol. Do Fletcher and Taft really think it is prudent to make the state’s education and health spending dependent on the sale of Marlboros and six packs?
One can hope that tax reform at the federal level will be different. If recent history is any indication, however, we best not get our hopes up. The 1986 tax reform, even with all its benefits, had many disastrous side effects for American business, all of which resulted from an insistence on revenue neutrality. If President Bush and the Congress want to truly reform the tax code, they should avoid the temptation to use revenue neutrality as an excuse to redistribute the tax burden among Americans.
Key Findings: Mr. Trump’s tax plan would substantially lower individual income taxes and the corporate income tax and eliminate a number of complex features in the current tax code. Mr. Trump’s plan would cut taxes by $11.98…
Introduction Taxes are a crucial component of a country’s international competitiveness. In today’s globalized economy, the structure of a country’s tax code is an important factor for businesses when they decide where to invest,…
TRUMP’S TROJAN HORSE
Donald Trump’s Tax Plan Will Not Be Revenue-Neutral Under Any Circumstances
September 29, 2015
By Alan Cole
In an op-ed in today’s Wall Street Journal, presidential candidate Donald J. Trump outlined some of the major benefits of his tax plan. In particular, the plan has some substantial rate reductions for all Americans. It also includes some revenue-raising provisions, such as taxing carried interest at ordinary income rates.
I describe the plan in detail in the analysis posted here. By my estimates, Mr. Trump’s plan, under the assumption that aggregate production and incomes don’t change as a result of the plan, reduces revenues to the treasury by $11.98 trillion. Allowing for the increased incentives to work and invest (and therefore, higher aggregate economic production) our Taxes and Growth model estimates the plan to reduce revenues by $10.20 trillion instead.
As you can imagine, then, I was puzzled by this statement in Mr. Trump’s piece: “With moderate growth, this plan will be revenue-neutral.”
I do not believe this to be true under any scenario remotely resembling Mr. Trump’s plan.
Mr. Trump is a popular candidate, and $11.98 trillion is a very large number, so I believe I owe my readers a longer explanation than I would give otherwise. To that end, a table of rates under current law and under the Trump plan may be illustrative in showing where I’m coming from.
Tabacco: Did you NOTICE WHO IS MISSING HERE?
Rates Under Current Law and Under Donald Trump’s Tax Plan
Top Marginal Individual Rate
Marginal Income Tax Rate for a Couple Earning $45,000
10% to 15%
Corporate Income Tax
Top Marginal Rate on Pass-Through Businesses
All four of these differences with current law are extremely large tax cuts. For example, the top marginal individual rate is currently paid by a lot of people who earn a lot of money. If a star actor is paid $10 million for a movie, Mr. Trump’s plan would collect about $1.4 million less from that actor. Over our country’s vast array of highly-compensated employees, this adds up very quickly.
Also important are the individual rate cuts farther down the bracket structure. While middle-class Americans have much less money to tax, they are numerous; even a small reduction in rates at the lower end of the scale could apply to nearly a hundred million households. It is worth remembering that the 0% rate on the first $50,000 of income doesn’t just apply to taxpayers earning under that amount. It applies to all taxpayers. Lowering the bottom bracket delivers a benefit to low- and high-income taxpayers alike.
The corporate income tax rate is reduced twenty percentage points. The corporate income tax is the federal government’s third largest source of revenue, behind only the individual income tax and the payroll tax.
Finally, a perhaps-overlooked but extremely important tax cut in the plan is the reduction in rates on pass-through businesses. Pass-through businesses are a large and growing share of all business in the U.S., and the rate reduction on these is very large. Consider that the top rate under the Trump plan is less than two fifths of what it is under current law. A highly productive pass-through business (such as, for example, some of the businesses owned by Mr. Trump) would see its tax bill fall by more than half.
Looking at these rates, collectively, note that Mr. Trump is frequently cutting rates in half, and sometimes cutting them by even more than that. Taken together, these rate reductions are enough—by my estimates—to reduce tax collections from about 18 percent of GDP to about 12 percent. Under rates as low as these, economic growth—moderate or otherwise—cannot restore federal revenues to current-law levels.
Tax cuts can do a great deal of good; each of the provisions I outlined above could help a lot of people lead better lives. However, the reductions in federal revenue need to be acknowledged, and likely mitigated through substantial cuts in spending, in order to make this plan feasible. I hope that my outline of these four key provisions explains adequately why I believe the Trump plan reduces revenue by so much.
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Tabacco: Why should you NOT trust Donald Trump in DC or Atlantic City?
1- He is a Billionaire, and if elected President, he will work to ensure the Billionaire Class thrives – no one can serve 2 Masters!
2- He is a Republican! When is the last time a Republican President actually did anything for the Middleclass except as crumbs while Have-Mores ate Cake!
3- Trump is an Autocrat! He will do what he wants, when he wants, where he wants, why he wants and how he wants. You don’t need Tabacco to tell you that! If you have seen him perform on TV, you already know.
4- Trump doesn’t give out Details, just Propaganda! Even Obama, who used to give out Details, is totally untrustworthy on TPP (Trans-Pacific Partnership), TARP Loan Repayments to Fed, Charter Schools, obsessive persecution of Whistleblowers and Israeli Nuclear Program and non-Signatory of Nuclear Non-Proliferation Treaty (NPT). So we know we cannot trust Donald Trump, who keeps Details SECRET just like the Bush-Cheney Administration did!
5- The necessity of having a ‘Successful’ businessman in the White House is Unproven and probably Unnecessary, but Trump has filed for Corporate Bankruptcy 4 times in 18-years. Where’s the Success in his Curriculum Vitae!
6- Trump is a womanizer (married more than once), demeans women and thinks women are inferior because of their Gender. Again you really don’t need me to point this out!
7- Trump is a bigot on so many levels!
8- Trump is truly a very dangerous man to permit access to that Red Button, which could begin WWIII and the End of Days. I personally am dubious about the ‘Anti-Christ’, but if there is an Anti-Christ, Donald Trump is the most likely Candidate!
9- If you consider pulling the Lever for Donald Trump, stop and consider Adolf Hitler as a Comparable!
10- There is such a thing as ‘Being Too Strong, Too Opinionated, Too Imperious, Too Tough and Too Paternalistic!’
11- Some of you laugh at Donald just as some laughed at Hitler. Neither of those Despots is funny, but both were/are Dangerous! You don’t need a funny mustache to be a World Tyrant!
12- Trump does NOT understand the Office of President. A President is not in the business of Maximizing Corporate or National Profits! A President cannot Fire Congressmen, the Supreme Court or Protestors! A President must be a Negotiator, which includes finding Common Ground with Democrats and Independents as well as Tea Partyers! Can you even imagine a ‘President Trump’ negotiating in Good Faith with anyone!
13- I would not want to be at Ground Zero when President Trump comments on Angela Merkel’s face or the eyes of the Chinese President’s wife!
14- If ‘President Trump’ would Cap the Tax Rate at 25% for Have-Mores, you can rest assured that the Middleclass Rate would be as close to 24% as is unreasonably possible to accommodate this Regressive Taxationist’s true goal!
15- As vain as Hitler ever was (and Napoleon and Alexander and Caesar and Nero)!
16- Even Sony didn’t get away with insulting Kim Jong-un of North Korea. I’m sure that a ‘President Trump’ would find a multitude of ways to insult that Nuclear Head-of-State!
You will forgive me for not republishing the URL for this tome. If you want to purchase it, you will have to look it up for yourself!
After publishing, I watched PBS News Hour. Directed by PBS, I went to their website to find the following Chart of GOPer Tax Plans. I must say that it is rather confusing to me. My information says Trump Caps Individual Tax Rate for Have-Mores at 25%. But This Chart Caps Income > $477,450 at 35% in Trump’s Plan. Perhaps you can make more sense out of this than Tabacco can. In any event, I republish this Chart for your perusal. Better late than never, I guess!
All these ‘Tax Plans’ are UNWORKABLE & tend towards REGRESSIVENESS! The Reason they are ALL UNWORKABLE is because REVENUE NEUTRALITY IS TOTALLY IGNORED except in those instances where Republicans are SQUEEZING BLOOD OUT OF THE POOR!
Of course when you are running for the Republican Nomination, you can make all sorts of promises, which would have to be seriously AMENDED, if not redacted, once you actually Win and submit your Tax Plan to Congress.
Bush’s Plan brings in less Tax Money than the Current System: Under $87,500 and Over $242,451 Incomes. REVENUE NEUTRALITY is obliterated! N/A
Paul’s Plan is a REGRESSIVE FLAT TAX for everyone over $50,000. You already know that Flat Tax is an Abomination the less you make! And that 14.5% Rate is les than HALF of what it would have to be to adhere to REVENUE NEUTRALITY. N/A
Rubio’s Plan DUMPS ON THE POOR and CRADLES THE SUPER-RICH! Sounds just like a Republican to me! At least he doesn’t obviously ignore Revenue Neutrality! N/A
Santorum’s Plan DOUBLES TAX RATE for $22,601-$31,050 Range! I wonder what he has against those folks! And he expects those making less than $12,600 to pay 20% in Taxes? Let’s call Santorum’s Plan what it is: REGRESSIVE TAXATION, which Coddles the Rich even more and BLEEDS THE POOR & MIDDLECLASS DRY!
From Santorum’s Plan, you can plainly see what happens if you Eradicate the Graduated Income Tax and replace it with a FLAT TAX! The more you make, the more you make out like a Bandito! If you are Poverty-Stricken, Santorum squeezes BLOOD out of your TURNIPS! N/A
Of course TRUMP PRETENDS he can MAKE EVERYBODY A WINNER! He’s the BIGGEST LIAR OF ALL OF THEM! N/A
According to THIS CHART, EVERYBODY WINS – THAT IS IF YOU MAKE MORE THAN $477,450! Under at least one of these Plans, Everybody under $477,450 either LOSES or breaks EVEN! That’s how we know Bush, Paul, Rubio, Santorum and Trump are ALL FULL OF $HIT!
Tabacco: I consider myself both a funnel and a filter. I funnel information, not readily available on the Mass Media, which is ignored and/or suppressed. I filter out the irrelevancies and trivialities to save both the time and effort of my Readers and bring consternation to the enemies of Truth & Fairness! When you read Tabacco, if you don’t learn something NEW, I’ve wasted your time.
Tabacco is not a blogger, who thinks; I am a Thinker, who blogs. Speaking Truth to Power!
In 1981′s ‘Body Heat’, Kathleen Turner said, “Knowledge is power”.
T.A.B.A.C.C.O. (Truth About Business And Congressional Crimes Organization) – Think Tank For Other 95% Of World: WTP = We The People