Friday, January 11, 2008

RUDY’S TAX PLAN

Also on this past Wednesday Republican presidential candidate and former NYC mayor Rudy Giuliani outlined his plan to cut taxes and reform the tax code in a speech in Melbourne, Florida, pledging, “the largest tax cut in the history of the United States.''
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Giuliani plans to simplify the tax code by introducing the Fair and Simple Tax (FAST) form.
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The FAST form gives American taxpayers the option of filling out their taxes on a single page, while cutting the current six brackets in half {rates would be 10%, 15% and 30% - rdf} and preserving the major deductions that Americans depend upon – mortgage interest, charity, state & local taxes, the child tax credit, the personal exemption and the new health care exclusion”.
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Rudy’s also plans to cut the corporate tax rate from 35% to 25% to keep America competitive in the global economy. In addition, the former Mayor proposes giving ending the estate tax, cutting the capital gains tax from 15% to 10%, and indexing the Alternative Minimum Tax for inflation and eventually eliminating it.
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In addition, the Mayor’s proposal “eliminates the double-taxation of personal saving accounts, reinstates the Research and Development Tax Credit and makes the current Bush tax cuts permanent”.
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Simplifying the tax code is good, as is a “Fair and Simple” Tax. But I doubt that he can “preserve the major deductions” and the Bush tax cuts and fit everything on one page. And what is with “give American taxpayers the option”? Is he talking about the same plan that a fellow Republican candidate proposed – giving us the option of calculating our tax liability by using a new simple tax system or continuing to use the current complicated one? Wait – it sounds like the Taxpayer’s Choice plan I discussed in my posting “
VERRRRY INTERESTING…..”. Again I ask – why give us a choice. Just simplify the code and have everyone use that method!

Reducing corporate tax rates is a popular notion – but instead why not create a “dividends paid deduction” for corporations as I had suggested.

What “double-taxation of personal saving accounts”? Interest paid on savings accounts are not taxed twice – unless I am missing something. Does he mean the double-taxation of corporate dividends? If so – again I refer you to the corporate “dividends paid deduction”.

I certainly support the ultimate elimination of the AMT – the sooner the better. And I would also support the death of the estate tax – if it allowed for a continuation of “stepped-up” basis on inherited property.
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The only question is how would Rudy make up the $2-$3 Trillion in lost government revenue estimated in a review of the plan in US News and World Report’s
CAPITAL COMMERCE blog? Giuliani said he would explain in coming weeks how he will pay for the tax cuts. Word is his plan will include a 5 to 10 percent reduction in spending at federal agencies, including staff reductions.
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Or, as Rudy says, they may just pay for themselves! Granted that lowering capital gain rates historically has increased income, but $2 Trillion?
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The above details of the Giuliani “tax plan” are taken from his own press release and various internet reportings. I have not read any detailed “position paper” on the proposals.

While the plan has hints of some good ideas, like the proposals of fellow candidates from both parties it looks like no real thought has gone into this tax plan. If anything he has latched onto someone else’s proposal, like Huckabee with the “Fair Tax” national sales tax. Rudy is just following the pack and saying what he thinks voters want to hear.

1 comment:

Will said...

I watched Giuliani present his tax proposals last night on Kudlow. Even though I like some of his ideas, I got the sense that he didn't know what he was talking about. Moreover, I think the bolder ideas have little chance of passing unless we see some sort of major change to the status quo.

The one idea I really like is indexing capital gains to inflation. To me, the government robs you twice when they don't reduce cap gains by inflation -- income should reflect an actual increase in wealth.