Comparing the GOP Tax Plans - Who Benefits and Who Loses?

Updated April 2016

A very interesting analysis by Citizens for Tax Justice compares the tax plans for each of the three key remaining GOP presidential candidates Ted Cruz and Donald Trump.  All of these plans will contribute to the federal debt which is already at crippling levels.

Let's open by looking at the most recent Budget and Economic Outlook for the period from 2016 to 2026 from the non-partisan Congressional Budget Office for some background information on the current state of America's fiscal situation.  While the Obama Administration and Congress are congratulating themselves for seeing the size of the deficit decline for the past six years as shown on this graph from FRED:

...the federal fiscal situation is far from healthy with the total federal debt at $19.125 trillion, up by nearly $8.5 trillion since Barack Obama took office.   The CBO's analysis shows that the federal deficit for 2016 will rise to $544 billion, an increase of $105 billion over fiscal 2015.  This means that the deficit for 2016 will be 2.9 percent of GDP.  Why will the deficit grow in 2016?  The CBO analysis states that the increase is largely attributable the legislation that has been enacted since August 2015; this legislation retroactively extends the provisions that reduce corporate and individual income taxes.

Not only is the deficit increasing in fiscal 2016, the CBO analysis shows that the growth in spending will outpace the growth in tax revenues over the next decade.  The budget deficit increases are modest to fiscal 2018 but grow sharply by 2026, rising to $1.4 trillion, which adds up to $9.4 trillion over the decade between 2016 and 2026.  As a percentage of GDP, the federal deficit will rise from 2.9 percent of GDP in 2018 to 4.9 percent in 2026.  This would push the debt held by the public up to 86 percent of GDP from its current level of 76 percent of GDP as shown on this graphic:

Keep in mind that part of the reason that the growth in the federal debt and deficit has been so modest over the past three or four years is the prolonged period of ultra-low interest rates on the outstanding marketable federal debt, a situation that will likely change over the coming decade.  As well, the CBO analysis does not allow for a recession which would reduce federal tax revenues and increase federal spending as Washington would likely be forced into stimulus spending.  Even with those two unusual circumstances not accounted for in their analysis, the CBO calculates that three decades from now, the public debt would reach a whopping 155 percent of GDP if current laws remain in place.

With that data in mind, let's look at CTJ's analysis of the Cruz, Rubio and Trump tax plans.  The analysis assumes that half of the tax changes for each of the presidential candidates would be paid for by cuts in spending and half by an across-the-board income tax increase, similar to what happened after the 1981 Ronald Reagan promised tax cuts became clearly unaffordable.

Here are the highlights of the tax plans:

1.) Ted Cruz:  Mr. Cruz's tax plan would cut taxes by $13.9 trillion over the next ten years by reducing personal income tax and replacing corporate income tax, estate tax and patrol tax with a 16 percent federal value-added tax (VAT).  This plan is set to benefit higher income people (i.e. the one percent) who would see an average tax cut of $435,854 while the bottom 20 percent would see their taxes rise by $3,161 and the middle 20 percent seeing their taxes rise by $1,943.  Essentially, only 20 percent of taxpayers would receive any benefit from the Cruz tax plan.

2.) Donald Trump:  Mr. Trump's tax plan would cut taxes by $12 trillion over the next ten years by reducing marginal tax rates and increasing the standard deduction.  While the Trump tax plan reduces taxes for all income groups, it is skewed to the rich with the top one percent seeing their taxes reduced by an average of $227,225 compared to only $250 for the bottom 20 percent and $2,571 for the middle 20 percent.  Again, when the impact of future spending cuts and tax increases are included in the analysis, only the top 5 percent of taxpayers would see a net benefit.

Keeping in mind that when the impact of the cuts in tax revenue have to be paid for through reductions in spending, the net impact of the tax cuts that I've noted above are significantly reduced.  In the case of the lowest 20 percent, the impact of "plan and pay-fors" reduces the Cruz income reduction from -$3,161 to -$6,234 and the Trump income gain from +$250 to -$2,541.

From the CTJ analysis, we can see that the two front-runners in the GOP race certainly know how to look after their wealthy peers despite their protestations that they are in it for "the little guy".  With the Congressional Budget Office's analysis of the coming decade looking rather dire, it really appears that, as Ronald Reagan found out in 1981, all of these campaign promises of tax cuts have to be paid for by cutting spending on government services, an issue that could prove to be problematic during the upcoming recession (whenever that may be...and it will be).