After the global financial crisis, President Obama signed the American Recovery and Reinvestment Act of 2009. The stimulus package was supposed to “jumpstart” the recovery and bring the American economy back to prosperity.
Instead, the economy has been growing at a lethargic 2%. Labor force participation remains low, and the underemployment rate remains high. The Obama administration has meanwhile added $8 trillion to the national debt.
Last month, former Florida Governor Jeb Bush released a tax plan that would simplify the tax code and increase economic growth. His plan would reduce the number of tax brackets from seven to three: 10%, 25%, and 28%. The standard deduction would nearly double for all filers.
The plan expands the earned income tax credit (EITC), eradicates the estate tax, and eliminates the marriage penalty. Overall, 15 million more Americans would no longer have an income tax liability. Jeb’s proposal to reduce the top rate from 39.6% to 28% would mirror the top rate under Reagan’s administration. The plan would also prohibit massive deductions by wealthy individuals except for charitable contributions.
Jeb’s plan encourages domestic investment by eliminating the outrageous tax burden on corporations. The United States has the highest corporate tax rate in the developed world at 35%, which Jeb would lower to 20%, the same rate paid by corporations in the United Kingdom. In order to increase productivity and wages, Jeb’s tax plan would allow businesses to deduct new capital investments. Elimination of most corporate tax deductions would compensate for the lost tax revenue.
According to the Tax Foundation, Jeb’s tax proposal would create 2.7 million full-time jobs and increase wages by 7.4%. Analysis by Kyle Pomerleau, an economist at the Tax Foundation, indicates Jeb’s plan would increase GDP by 10% in the long run. The tax cuts would result in a $3.66 trillion loss in revenue over the next 10 years. But the economic growth generated by the tax cuts would shrink the revenue loss to $1.6 trillion.
Any administration would face difficulties passing tax reform legislation, but Jeb has a record of implementing sound tax reform. As governor of Florida, Jeb cut taxes every year in office. During his tenure, Florida added 1.3 million new jobs, median household income grew by $1,300, and the state’s economy grew at an average rate of 4.4% every year. Despite consistent tax cuts, Jeb balanced the state’s budget 8 years in a row. During his time in office, Jeb saved Florida taxpayers $19 billion, the most of any governor seeking the Republican nomination.
Democrats have argued that Jeb’s tax plan disproportionately favors the wealthy. While it’s true the wealthy would benefit from Jeb’s tax plan, low income Americans benefit as well. Expanding the EITC would offer relief to working-class Americans without raising the minimum wage. With a workforce participation rate of only 62%, broadening the EITC would tackle the problem of government dependency and encourage people to enter the workforce.
Despite criticism of his tax plan from both the right and left, Jeb is one of the few candidates to produce a practical and comprehensible tax proposal. Mike Huckabee has proposed a fair tax, but offers few details in what he calls a “tax revolution” that “eliminates the IRS once and for all.” Ben Carson, one of the current GOP frontrunners, has proposed a flat tax of 10%, and also suggests abolishing the IRS.
But does anyone genuinely believe the federal government can do without the IRS? A nation of 320 million people with the size, scope, and complexity of an $18 trillion economy requires some sort of government agency to collect revenue.
Unlike his opponents, Jeb Bush acknowledges that the IRS and a progressive income tax system are here to stay. His proposal offers practical solutions to simplify the tax code, help working Americans, and increase economic growth.