Tax credits seem to be a popular topic – consolidating and expanding existing ones and creating a new one for health care. The candidates want to make many of these credits “refundable” – if the total amount of the credit exceeds the total tax liability on the return the excess would be refunded as a gift to the taxpayer – similar to the current refundable Earned Income Credit and Child Tax Credit.
I am all for targeted tax credits to encourage positive activity such as saving for retirement, continuing education, child care, and purchasing health care. I especially like Joe Biden’s plan to consolidate the education tax credits and deduction for tuition and fees into a single credit. Any consolidation or simplification of tax benefits is a good thing. But I am against “refundable” credits of any kind. As we have seen with the EIC, this encourages rampant tax fraud.
There is no doubt that taxpayers in many income levels need help paying for health insurance, especially here in New Jersey. For my money I would rather be provided with a source of cheap, government subsidized health insurance for small business owners and low to middle-income taxpayers rather than a tax credit.
There is not much in the matrix on changes to the taxation of investment income. I am very much opposed to John Edwards’ and Barrack Obama’s plans to increase the top tax rate on long-term capital gains. I strongly believe that lower tax rates on capital gains increase tax revenue in the long run.
I like Mitt Romney’s proposal to reduce the tax rate on interest, capital gains and dividends to 0% for taxpayers with AGI under $200,000. I am all for encouraging savings and investment. This may, however, may be a bit too much. Perhaps, instead, a variation on John Edwards’ recommendation to exempt the first $250.00 in interest, dividends and capital gains from income tax, similar in a way to the old “dividend exclusion” of my early days in the business (everything old is new again).
According to the matrix, the candidates are pretty silent on the topic of the dreaded Alternative Minimum Tax, other than one plan to index the exemption amounts for inflation and another to make George W’s increased exemption amounts permanent. It is very clear, at least to me, that, like Frankenstein in the old Hammer film, the Alternative Minimum Tax must be destroyed!
In general, the tax proposals of the candidates add to, instead of taking away from, the current complication of the Tax Code. Sam Brownback (no Brownback Mountain jokes now) supported a “flat tax”, but he has dropped out of the race, and only Mike Huckabee supports the “Fair Tax” national retail sales tax.
A few of the candidates favor repealing the federal estate tax. While no fan of the tax, as I have said here many times before, my only concern with its total repeal is the issue of “stepped-up basis” for inherited property. I would prefer to substantially increase the exemption amount – to $5 Million or more – as already proposed and attempted by the Democrats.
Duncan Hunter (I will admit I never heard of him before – he is a Republican Congressman from California) “supports a ‘major’ tax reform to simplify the tax system”. One of the few things that George W did correct during his tenure (although I also support the bulk of his tax cuts) was to create the President's Advisory Panel on Federal Tax Reform to “advise on options to reform the tax code to make it simpler, fairer, and more pro-growth to benefit all Americans”. Unfortunately, nothing ever came from this effort, as George W apparently lost interest.
My tax plan, if I were running for President, would be to reinstate the tax reform panel, make it totally non-political, and take its findings seriously. As I have said before, as a tax professional I am not against a flatter, more simple tax system. While complication is always good for business, I feel, and have so stated here in the past, that I would not lose business or income if the Tax Code was vastly simplified.
So what do you think about the candidates’ tax proposals?
BTW, the Center for Tax Justice also has a page on Presidential candidates’ tax proposals.