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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?