By BRIAN FALER 02/11/16 01:17 PM EST
Republican presidential candidate Marco Rubio’s tax reform plan would add at least $6.8 trillion to the deficit, according to a new analysis, with the wealthiest reaping the biggest gains.
Though Rubio has touted his proposal as middle-class friendly, and he skimps on the cuts in marginal tax rates long favored by Republicans, the Tax Policy Center said today that his plan would nevertheless favor the rich thanks to his proposed cuts in capital gains and dividend taxes.
The very top .1 percent of earners, with incomes of at least $3.7 million, would see an average tax cut of more than $900,000. That would amount to a 13.6 percent increase in their after-tax income, the tax analysts said.
Those in the middle of the income distribution would see an average tax cut of $1,400 or 2.5 percent, while the poorest would see their taxes go down by $250, boosting their incomes by 1.9 percent, according to its analysis.
“Tax cuts for everybody — but the biggest tax cuts both in dollars and in percentage of income go to those with very high incomes,” said Len Burman, head of the group.
That puts Rubio’s proposal generally in line with those of his Republican rivals, which have been projected to boost the debt while favoring the rich.
Experts say it’s difficult to remake an already progressive tax system — in which the top 1 percent pay about 40 percent of all federal income taxes — without favoring the rich when Republicans are determined to cut both the top tax rate and investment taxes.
Rubio tried to avoid that fate by balancing those cuts with a dramatic expansion of the Clinton-era child tax credit, a hugely popular middle-class break. His plan would more than triple the maximum credit to $3,500 per child, up from the current $1,000.
That, along with another new $2,000 credit, would move an additional 10 million low-income Americans off the federal tax rolls entirely. Roughly 87 million Americans in 2017, or about 50 percent of households, would not pay federal income taxes under Rubio’s plan, the group said.
At the same time, he has proposed cutting the top income tax rate by just 4 percentage points, to 35 percent from the current 39.6 percent, far less than what his Republican rivals have proposed and to the disappointment of supply-side conservatives.
But he would also end taxes on capital gains and dividends — now taxed at rates that top out at 23.8 percent — while driving down the maximum tax on partnerships and other so-called pass throughs to 25 percent.
That would increase the after-tax incomes of the top 1 percent by 10 percent, according to the Tax Policy Center, compared with 1.9 percent for the bottom quintile of earners.
The hit to the budget would grow to $8 trillion, once a projected increase in interest payments on the debt are figured in, which would amount to almost doubling projected deficits over the next decade.
That’s more than the $4.1 trillion the conservative-leaning Tax Foundation found in its analysis of a similar, though not identical, Rubio tax plan, and less than the $11.8 trillion tally produced by the liberal Citizens for Tax Justice.
Congress would have to cut spending by 12 percent to prevent the plan from adding to the red ink, the Tax Policy Center said.
“These are very big deficits — past Republican presidents haven’t been able to cut spending anywhere near this much,” said Burman.
The group’s other findings may also give the Rubio campaign headaches.
Though Rubio has accused Ted Cruz of proposing to create a value-added tax, the Tax Policy Center said Rubio’s plan to rewrite the business tax code would also amount to creating a VAT.
Rubio wants to cut the business tax to 25 percent, while allowing them to immediately write off their investment expenses. At the same time, he would take away long-standing provisions in the code allowing them to deduct interest expenses.
That would slash marginal tax rate on investments, which would help the economy, but it would also be tantamount to “a variant of the value-added tax,” said Burman.
What’s more said Burman, Rubio’s proposal to offer widely varying tax rates on individual income, business profits and capital gains would create “giant” opportunities for creating tax shelters.
“If the top tax rate is 35 percent, but if you earn your income as a small business that’s at 25 percent, you have a very strong incentive to try to make your income look like business income rather than wages or salaries,” he said.
The group assumed Rubio would add anti-abuse rules to prevent that, while warning those would be difficult to craft.
“The boundary is difficult to enforce under current law and would be even more difficult to police if the Rubio proposal were enacted,” the report said. “Nevertheless, for purposes of our analysis, we have assumed that effective rules would be implemented. Without such rules, the plan would lose substantially more revenue than we estimate.”