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Presidential Candidates Propose Changes To U.S. Tax System

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Presidential Candidates Propose Changes To U.S. Tax System

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Presidential Candidates Propose Changes To U.S. Tax System

Presidential Candidates Propose Changes To U.S. Tax System

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Renee Montagne talks to David Wessel, director of the Hutchins Center at the Brookings Institution and a contributing correspondent to The Wall Street Journal, who parses the campaign tax debate.

RENEE MONTAGNE, HOST:

The presidential candidates seem to mention in all their speeches and debates certain issues, like immigration and income inequality - but taxes, well, a little less. This year's presidential campaigns actually do feature some variable proposals to change the U.S. tax system. We turn now to David Wessel for some perspective, as we often do. He's director of the Hutchins Center at the Brookings Institution and a contributing correspondent to The Wall Street Journal. Good morning.

DAVID WESSEL: Good morning, Renee.

MONTAGNE: Now, the leading Republican candidates are talking about big tax cuts, predictably. What is different this year?

WESSEL: Well, both Ted Cruz and Marco Rubio are proposing tax-reform concepts that economists have been working on for years but politicians, certainly candidates, have largely ignored. And they're aimed at encouraging us to save more by relying less on taxes on our income and more on taxes on our spending. So Ted Cruz, for instance, would shrink the existing income and payroll taxes, and impose what he calls a flat tax, what economists know as a value-added tax, a kind of national sales tax that would be collected by businesses at every stage of production. And Marco Rubio would eliminate all the taxes on interest and dividends and capital gains. That means the government would only be taxing what we spend on consumption, not on savings. And he'd do it so that they're higher rates for higher income folks because they tend to spend more money. Now, it's a tax designed years ago by the late Princeton economist David Bradford, and economists call that the X-tax. But you never hear Marco Rubio say that.

MONTAGNE: And Donald Trump?

WESSEL: Well, Donald Trump's plan is more conventional Republican style. It sticks with the current tax structure, but it sharply reduces tax rates on businesses and individuals. And it eliminates some deductions and credits - big but not structurally different.

MONTAGNE: You know, the federal debt is already scarily big, I think a lot of people think, and projected to rise over the next couple of decades, which raises the question, how do the Republican candidates propose to pay for their tax cuts?

WESSEL: Well, the short answer is they don't. I heard Bill Hoagland the other day - he was a Republican staff director of the Senate Budget Committee for years - say that to balance the budget over the next decade, which is what Republicans in Congress often say they want to do, and cut taxes as much as the Republican presidential candidates say they want to do, would require reducing all government spending by 50 percent over the next decade. Now, of course the candidates say their taxes would lead - their tax cuts would lead to a surge in economic growth. And that growth would produce more tax revenues. But even the most optimistic credible estimates don't predict nearly enough extra growth to pay for the next cuts. And certainly, that's certainly true of the kind of estimates that the congressional scorekeepers, whose scores matter, predict.

MONTAGNE: Well, let's give a few seconds to the Democrats. Bernie Sanders is a candidate who talks about taxes.

WESSEL: He does. He mostly talks about increasing taxes on rich people. And, as you've talked about on this program before, he's pushing a broad new tax on financial transactions, Another idea that economists have been kicking around for decades, one aimed at discouraging excess and unproductive trading. Hillary Clinton hasn't fleshed out your tax plane yet. She's letting it out in pieces. She doesn't seem to want to turn the tax code inside out. She's talked about raising taxes in the highest income Americans, targeted tax cuts for the middle class and a new tax that's focused on high-frequency stock trading, a much narrower financial-transactions tax than Bernie Sanders. One thing that seems to work her campaign, in contrast to the Republicans, so far at least, she's been very cautious about promising big tax cuts that would blow a hole in the budget.

MONTAGNE: All right. David, thanks very much.

WESSEL: You're welcome.

MONTAGNE: That's David Wessel of the Hutchinson Center at the Brookings Institution.

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