James Pethokoukis

Politics and policy from inside Washington

Huntsman tax plan goes big and bold

August 31, 2011

Current polls say Jon Huntsman, former Utah governor and ambassador to China, isn’t a top tier candidate for the 2012 Republican presidential nomination. But he certainly has a top-tier economic plan. Huntsman will offer a broad proposal later today – covering taxes, regulation, trade and energy. But I already had a peek at the tax part. And I think it is excellent. Huntsman says he would do the following:

1) Eliminate all deductions and credits in favor of three drastically lower rates of 8%, 14% and 23%.

2) Eliminate the Alternative Minimum Tax.

3) Eliminate taxes on capital gains and dividends in order to eliminate the double taxation on investment.

4) Reduce the corporate rate from 35% To 25%. Huntsman would also shift to a territorial tax system and implement a tax holiday for the repatriation of foreign earnings.

Basically, this is the “zero option” Bowles-Simpson tax plan that lowers marginal tax rates and broadens the tax base. But there is at least one big difference. B-S would use part of the money from axing some $1 trillion in annual tax breaks to lower marginal rates and part for deficit reduction – a net tax hike. Huntsman would divert that extra tax revenue into “paying for” the elimination of investment taxes.

At first glance, this looks like perhaps the most pro-growth, pro-market (and anti-crony capitalist) tax plan put forward by a major U.S. president candidate since Ronald Reagan in 1980. But it is not without political risk. In addition to killing tax breaks for businesses, Huntsman would eliminate the mortgage interest deduction, healthcare exclusion, and the child tax credit among other “tax expenditures. ” We’re talking about a whole herd of sacred cows. Both his fellow presidential candidates and Washington lobbyists will likely attack him for some of those ideas.

I would like to see an analysis of the plan’s distributional impact on various household income tax levels. In addition, a CBO-style revenue and spending breakdown would be helpful.  Keep on the look out for a chat I had with Huntsman about his economic plan. I will post it sometime after his speech later today on the proposal.

Comments

Hunstman joins a long list of politicians on both sides of the aisle who think that lowering tax rates and eliminating tax breaks is the most sensible way to reform the tax code.

Think of the government as a discount supermarket. There are two types of these supermarkets, ones with discount cards and ones with everyday low prices. Studies have shown that stores that always have low prices, as opposed to coupons, save the consumer more money on average. (http://eng.am/rcsgra)

Currently the U.S. has a discount card system. When you go to pay your taxes you look at what tax deduction coupons you have available and use them to lower your overall tax rate. Although in the U.S., unlike a supermarket, not everyone gets the same tax breaks. While the mortgage interest deduction was touted as a middle class tax break it has really only benefitted the wealthy. (http://eng.am/nUxjIS)

For the reasons why a low rate system works all one has to do is look at Walmart. Walmart has been successful for over 30 years because the people who shop there feel comfortable because they know they are getting the best prices. There is no booklet to cut coupons out of and no need to put off purchases until the item goes on sale.

Over time in a low rate system people end up spending more money because there is no hassle, while at the same time saving more; exactly the type of tax policy the U.S. needs.

Posted by DaveEngAmerica | Report as abusive
 

Hunstman joins a long list of politicians on both sides of the aisle who think that lowering tax rates and eliminating tax breaks is the most sensible way to reform the tax code.

Think of the government as a discount supermarket. There are two types of these supermarkets, ones with discount cards and ones with everyday low prices. Studies have shown that stores that always have low prices, as opposed to coupons, save the consumer more money on average. (http://eng.am/rcsgra)

Currently the U.S. has a discount card system. When you go to pay your taxes you look at what tax deduction coupons you have available and use them to lower your overall tax rate. Although in the U.S., unlike a supermarket, not everyone gets the same tax breaks. While the mortgage interest deduction was touted as a middle class tax break it has really only benefitted the wealthy. (http://eng.am/nUxjIS)

For the reasons why a low rate system works all one has to do is look at Walmart. Walmart has been successful for over 30 years because the people who shop there feel comfortable because they know they are getting the best prices. There is no booklet to cut coupons out of and no need to put off purchases until the item goes on sale.

Over time in a low rate system people end up spending more money because there is no hassle, while at the same time saving more; exactly the type of tax policy the U.S. needs.

Posted by DaveEngAmerica | Report as abusive
 

This is a fantastic plan, and shows the depth and breadth of ideas coming from the Republican Party – as opposed to the other side of the aisle, where all you hear are crickets and complaints.

I would sign off on this plan being one of the main planks at the convention, with a few tweaks of my own:

“Huntsman would divert that extra tax revenue into “paying for” the elimination of investment taxes.”

Why not divert it instead into paying off the debt, and then after five years shifting some of it over to investment taxes?

“In addition to killing tax breaks for businesses, Huntsman would eliminate the mortgage interest deduction, healthcare exclusion, and the child tax credit among other ‘tax expenditures’.”

I would NOT kill any breaks for businesses (they’ve been abused by the government enough as it is), and leave the healthcare exclusion and child tax credits in place as well – revisiting them after a period of time; specifically after the new tax rates have had a chance to take effect … say, two tax cycles.

Everything else would go ahead, and the new rates would take effect ASAP.

Posted by NWBill | Report as abusive
 

If this is Revenue neutral – it is increasing taxes on someone while decreasing taxes for someone else.

It would also be interesting to see an analysis of who is impacted by this and how much.

Posted by radicall77 | Report as abusive
 

Taxing income at all is illogical. You are taxing the act of creation. The best idea is a consumption tax which would cause everyone to have “skin in the game” as opposed to the 50% of Americans who pay no income tax at all.

A consumption tax is the only truly fair progressive tax since the more people consume, the more they pay. If one looks at taxes as the “rent” we pay to live in a free and fair society, this is the only model which makes sense.

Of course pushing such a tax through would be tough sledding as those 50% who pay no taxes currently would oppose it.

“A democracy cannot exist as a permanent form of government. It can only exist until a majority of voters discover that they can vote themselves largess out of the public treasury.” – Alexander Tytler

Posted by mitchellvii | Report as abusive
 

What Mr. Huntsman has proposed makes sense, but I wish he would go further and eliminate all tax brackets, just have one low bracket for everyone. Politicians would be forced to sell their ideas to every voter who would be likely oppose spending if it would raise everyones taxes. “Class warfare” that the politicians love so much would be ended, and we would all have equal protection from taxation which would be much fairer than our current system. @mitchellvii – your idea is an even better one!

Posted by zotdoc | Report as abusive
 

It is a pretty good plan, he should suggest it to someone that has a ghost of a chance of winning the nomination.

Posted by HENRYC | Report as abusive
 

@mitchellvii : Great idea!

Let’s draw a pound of flesh from the Americans who make less than 20,000 an year because the millionaires and billionaires aren’t making enough.

Consumption Taxes again affect the same demographic disproportionately.

Are we trying to punish the poor to make them poorer? The people who spend are the ones who create wealth for the producers. If you squash the spender – you will kill wealth creation. Unless your target markets are outside the US.

Posted by radicall77 | Report as abusive
 

They are also talking about not allowing the tax deduction for charitable contributions. Now is the time to donate money, items or car to charity. http://www.cars4charities.org/

Posted by Cars4Charities | Report as abusive
 

Total stupidity. If lower capital gains taxes created a SINGLE job, why not tell us how many the 15% created over rates BEFORE Bush and how many jobs they created. By the way, revisionist history on Reagan. He RAISED taxes, In fact, lets go back to the rates of his day.

Posted by seanumich | Report as abusive
 

Great start, with a few adjustments:

Contributions to 501-c3′s should remain tax deductible. They take the load off the government to provide services.

Maintain taxes on dividends and capital gains – in fact, remove the 15% flat rate and make them taxable at whatever the rest of the individual or corporation’s tax rate is. People don’t need special incentives to invest – this has always been a rich-man’s subsidy.

Provide a baseline tax exemption based on household size so a person/household can keep at least enough to pay for rent, food, and basic transportation. People should pay their fair share, but we don’t want to literally tax someone to death. No pay-back credits though – it’s an exemption only.

And finally – stipulate that NO future government incentives ever be implemented via the tax code again. If the government wants to subsidize corn ethanol, solar energy, or a new electronics industry specialty, they have to do it through directly trackable subsidies, not the tax system.

Posted by TC-PA | Report as abusive
 

Its more important to reduce the deficit that it is to eliminate investment taxes. Other than that its a fine plan as is Bowles-Simpson. Also, Mr. Huntsman – global warming is fake!

Posted by joeThousandaire | Report as abusive
 

Where would the elderly fit in to this tax plan of 8%, 14% and 23%? Thank you.

Posted by texasfilly | Report as abusive
 

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