These effects will be particularly pronounced for high-income earners, who are the most capable of starting businesses and investing in business expansions that can lead to more employment opportunities for low- and middle-income workers. The Tax Policy Center may be overestimating the revenue lost from each plan because it fails to account for all the ways that lower tax rates increase incentives to work longer hours, take risks, and start businesses. Those with more income would pay proportionally more, but would have the same incentive as everyone else to earn more. With his plan, the wealthy get to keep the same percentage of each additional dollar they earn by working harder, as do the middle class. But in proposing a flat tax, Cruz goes one step further than Trump. Both also are based on the premise that lower tax rates on the rich increase their incentives to save, invest, and create business. The Tax Policy Center estimates that by 2025, the annual reduction in revenue from either plan would exceed the entire military budget.īoth candidates’ plans are consistent with the view that people can make better decisions than the government about how to spend their own money. This incentivizes greater savings and investment, which are important for promoting economic growth.īecause each plan substantially reduces the amount of revenue collected by the federal government, it would raise the federal deficit unless Congress has the political will to enact similarly large spending cuts. It effectively exempts savings and investment income of the middle class from taxation. The Tax Policy Center estimates that Cruz’s plan would reduce revenue by $8.6 trillion over 10 years, while Trump’s would reduce revenue by $9.5 trillion over ten years.Ĭruz’s tax plan also has some other positive features that are worth noting. It cuts middle-class taxes by more but reduces rates less for those with high incomes. Trump’s plan would reduce government revenue by more than Cruz’s plan. It would not change the payroll tax, which is used to fund Social Security and Medicare. Trump proposes a flat corporate-income tax rate of 15 percent and would also repeal federal estate and gift taxes. Trump’s plan would also lower tax rates for most Americans, reducing top tax rates to 25 percent. Read: What’s the Deal with a $15 Minimum Wage?
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