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Debate Prep: Asking The Right Questions About Jeb Bush’s Tax Plan

In an attempt to breath some energy into his flagging campaign, establishment Republican “frontrunner” Jeb Bush has announced a new tax plan that he claims will reenergize the economy after the seven-year disaster of Obamanomics. 

Jeb BushThe central element of Bush’s tax plan is a set of tax cuts that look and sound conservative – and thus draw the ire of the liberal media. 

The Huffington Post reports the left-leaning Citizens for Tax Justice, which advocates for "requiring the wealthy to pay their fair share" whined that while Americans at every income level would get a tax break under Jeb's plan, the size of that break would differ vastly. Those in the poorest 20 percent of the country would receive, on average, a $227 cut, while those in the top 1 percent could expect about $82,392 – a nearly 53 percent share of the individual income tax cuts. 

Unlike the liberals at the HuffPo, we have no beef with the distribution of Jeb’s individual income tax cuts.  

According to The Wall Street Journal the poorest 20 percent pay no income tax at all. Indeed, the bottom 40 percent of American taxpayers pays no income tax - they get a subsidy - while the top 20 percent pays 84 percent of income taxes. The much-reviled 1 percent pays nearly half the income tax collected by Uncle Sam, so if you’re going to cut taxes the people who actually pay the taxes should logically get the tax cuts. 

Otherwise it’s not a tax “cut” but an income transfer, which by the way Jeb seems to endorse through a proposal that amounts to an increase in the earned income tax credit. But, all-in-all, so far so good for Jeb.

However, when you look at the details beyond the individual income tax cuts, Jeb’s plan starts to get, as Ben Casselman writing for Nate Silver’s fivethirtyeight.com put it, pretty weird. 

The stated goal of Bush’s plan is job creation, but in reality the plan is a purely political document. 

Bush’s new tax plan has something for everyone to love — and for everyone to hate. That might turn out to be good politics, but it makes for some strange economics as Casselman put it – and we agree. 

It is a proposal, in other words, says Casselman, that takes on all of Bush’s various opponents at once. In its broad themes, it is a response to Hillary Clinton’s claim in a speech in July that the “defining economic challenge of our time” is raising incomes for working Americans. Instead, Bush argues that the defining challenge is increasing overall economic growth. But its specific proposals seem targeted at other Republican candidates: tax cuts to take on Scott Walker; wonkish reforms to take on Marco Rubio; populism to take on Donald Trump. 

Taken as a whole Casselman doesn’t come out against Bush’s proposal – indeed he’s pretty positive about it – but he says taken at face value, Bush’s plan offers an unlikely combination of solutions to the problem of slow growth. 

Part of the problem is that Bush’s desire to appeal to populist sensibilities about tax code loopholes and corporate subsidies demands that elimination of such crony government incentives be part of his plan – but those are exactly the tools that government has used to “manage” economic activity for generations. 

Likewise there’s a “whose ox is getting gored” element to some of Bush’s subsidy elimination. 

In his analysis for Forbes tax expert Peter J Reilly pointed out that past subsidy and loophole elimination efforts have had many unintended consequences. 

The Tax Reform Act of 1986 contributed to the decline of the real estate industry. The changes that contributed to the decline of the industry include the elimination of the capital gains tax differential, the increase in the period for writing off taxes for depreciable real property, and the limitation of the deductions of passive investment losses. These changes have reduced the market value of real property, created an incentive for divesting real property, increased the difficulty of divesting real estate, and reduced the attractiveness of investing in new housing and construction, noted Reilly. 

So Bush’s proposal to eliminate the deduction for business interest threatens firms that are reliant on debt financing.   

Taxing interest would especially hurt Main Street. Small firms find it hard to raise equity. Farmers would find it more expensive to get loans to smooth the seasonality of their incomes.  

The notion that you could run into a rough patch during which there is barely enough operating income to cover your interest expense, but you are still generating taxable income because the interest is not deductible is frightening. It seems like it would make starting up very challenging and that when businesses hit a rough patch it would be equivalent to kicking them when they are down concluded Reilly. 

But including that proposal in plan allows Jeb to campaign against hedge funds, while taking their money, just like Hillary Clinton has done. 

All of this begs the question from conservatives: Why should the government pick economic winners and losers through the tax code? 

And that’s the right question to ask Jeb Bush about his tax plan. 

The conservative answer is of course that the government shouldn’t pick winners and losers through the tax code – it should formulate a tax code that equitably raises the money the government needs to fund its constitutional responsibilities. 

And that brings up a second question: If the goal is to reform the tax code, why not propose a flat tax or consumption tax – like the fair tax – as other conservative candidates for president have done? 

Judging by his tax plan, Jeb Bush’s answer would seem to be that he favors politicians “managing” the economy, rather than letting market competition allocate resources. 

And that brings up our last question: If the government – or rather politicians – can’t hand out favors through the tax code how will the Washington Cartel continue to subsidize its supporters, reward favored competitors, close markets, eliminate competition and punish politically unpopular businesses and interest groups? 

The answer is that they wouldn’t be able to do any of those things through the tax code if loopholes, special interest deductions and subsidies were actually eliminated through a flat tax or the fair tax – and that’s the last thing Jeb Bush’s Washington Cartel supporters want, which is why Jeb Bush’s plan merely reshuffles the deck of who gets the favors, rather than fundamentally reforms the tax code.

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