You are on page 1of 33

TaxPolicy2017:

ProposalsandProspectsforSignificantTax
Reformunderthe45th President
KirkJ.Stark
BarrallFamilyProfessorofTaxLawandPolicy
UCLASchoolofLaw
July15,2017

StructureofMyRemarks
PopularpoliticalsupportforreformingU.S.taxsystem.
StructuraltrendsinthedistributionofU.S.federaltaxburdens.
Responsesofpresidentialcandidatestopopularsentimentforreform.
Taxproposalsof5candidates:3Republicans and2Democrats
ProjectionsforNovember2016election.
Projectionsabouttaxreformin2017orbeyond.

Alongtimeago,inagalaxyfarfar away

GOPCandidateTaxProposals
Flattenindividualrates(10%,20%,25%),increasestandarddeduction
($25k/$50k),Taxcarriedinterestatordinaryrates(butpresumablynew
businesstaxrateof15%).
EliminateAMT,3.8%NIT,EstateTax.
Reducecorporaterateto15%andapplysamemax15%ratetoall
businessincomeincludingpassthroughentities.

Singlerateof10%w/$10kstandarddeduction.Nodeductsexcept
charitable&homemortgageinterest,expandedEITC.

EliminateAMT,3.8%NIT,EstateTax&payrolltaxes.

NewBusinessFlatTax(subtractionmethodVAT)of16%.Deduction
forallpaymentstootherfirms;nodeductionforwages.

Flattenrates(15%,25%,35%),replacestandarddeductionw/refundable
$2kcredit(McGovern)&new$2.5kchildcredit;nodeductsexcept
charitable&homemortgageinterest.
EliminateAMT,3.8%NIT,EstateTax.
Reducecorporaterateto25%andapplysamemax25%ratetoall
businessincomeincludingpassthroughentities.Allbusinessexpenses
immediatelydeductible,aswithsubtractionmethodVAT,butwages
wouldbedeductible(andtaxedatprogressiveratesof15%to35%).

TaxCutsasaPercentageofGDP
BasedonDatafromLenBurman,UrbanBrookingsTaxPolicyCenter

Kennedy(1964)

1.6%

Reagan(198184)

2.1%

Bush(20012004)

1.4%

Rubio(201726)

2.6%

Cruz(201726)

3.6%

Trump(201726)

4.0%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

DEMCandidateTaxProposals
New4%surchargeonincomesgreaterthan$5million
(similartoFrenchexceptionalsurtax).
Taxcarriedinterestasordinaryincome.
AdoptaBuffetRuletoensurethatthosewithincome
greaterthan$1millionfaceeffectiverateofatleast30%.

Increasetopestatetaxrateto45%&reduceexemptionto
$3.5million.

Steepensratesathighincomelevelswithnewratesof37%,43%,
48%,52%(withtoprateapplyingtoincomeover$10million).All
otherbracketsincreaseby2.2%.Itemizeddeductionscappedat
28%marginalrate.
Forthosewithincome>$250k,taxcapitalgainsasordinaryincome.
Newfinancialtransactionstax(Tobin).
Socialsecuritytaxesextendedtoincomesover$250,000.New6.2%
employertax.New0.2%wagetaxtofundpaidfamilyleave.

RecappingthePartisanTaxDivide
RepublicanCandidateConsensus:

flattentheratestructure,lowertherates
eliminateAMT,NIT,estatetax
significantreworkingofbusinesstaxstructure
significantreductioninfederalrevenue

DemocraticCandidateConsensus:

increaseratesatthehighend
limitdeductions;limitfavorablecapitalgainsrate
nomajordeparturefromexistingstructure
significantincreaseinfederalrevenue

Thenext8 months
PrimariestodetermineGOPnominee
PrimariestodetermineDEMnominee
NovemberelectionstodeterminePresident
NovemberelectionstodeterminecontrolofHouse
NovemberelectionstodeterminecontrolofSenate
obviously,alotcanhappenbetweennowandthen

Whowillwinthe2016Republican
presidentialnomination?(predictit.org)

Whowillwinthe2016Democratic
presidentialnomination?(predictit.org)

IEMPredictionMarkets:
PresidentialRace

Whowillwinthe2016
presidentialelection?(predictit.org)

IEMPredictionMarkets:
ControlofCongress

PossibleExecutiveLegislativeOutcomes,
(VeryLoosely)RankedbyLikelihood
1.
2.
3.
4.

DEMPresident,DEMSenate,GOPHouse
DEMPresident,GOPSenate,GOPHouse
GOPPresident,DEMSenate,GOPHouse
GOPPresident,GOPSenate,GOPHouse

Notes
themostlikelyoutcomesfeaturedividedgovernment
filibusterproofSenatecontrolveryunlikelyforeitherparty
close2016marginswilllikelyacceleratethepolitical
salienceoffutureelections(2018,2020,etc)

PossibleExecutiveLegislativeOutcomes,
(VeryLoosely)RankedbyLikelihood
1.
2.
3.
4.

DEMPresident,DEMSenate,GOPHouse
DEMPresident,GOPSenate,GOPHouse
GOPPresident,DEMSenate,GOPHouse
GOPPresident,GOPSenate,GOPHouse

Notes
themostlikelyoutcomesfeaturedividedgovernment
filibusterproofSenatecontrolveryunlikelyforeitherparty
close2016marginswilllikelyacceleratethepolitical
salienceoffutureelections(2018,2020,etc)

Source:Eskridge,Vetogates andAmericanPublicLaw,J.Law&EconOrg.(2012)

TaxReformActof2017?
uncertaintyre:influenceofexogenousfactors
significantchangesineconomicconditions
terroristattacks
Octobersurprises

uncertaintyre:logrolling,politicalcompromise
Safestpredictions:incrementalreform

maybe somemovementoncarriedinterest
maybe somenewlimitationsonitemizeddeductions
maybe somereformofinternationaltaxrules
maybe somereductionincorporatetaxrates

Biggestunknown:whathappenswithGOPcontrolof
WhiteHouse,SenateandHouseofRepresentatives?

You might also like