Jeb Bush Announces Tax Simplification Plan

Jeb Bush announced his tax overhaul plan in an op-ed in the Wall Street Journal on September 9.

My perspective is that any simplification of the byzantine, anti-growth U.S. tax code, short of throwing it away altogether, is a good thing.

But make no mistake, as much as I support any effort to cut taxes, its benefit to the economy still pales in comparison to the prosperity that would be unleashed if the U.S. dollar was relinked to gold. Bush makes no reference to the dollar or monetary policy in his piece. Cue the sigh.

Bush wants to reduce the number of marginal tax rates from seven to three. Disappointing to say the least! Can't we have something bolder? One flat rate perhaps? Progressivity punishes success. How about making the case that the tax code should not contain any disincentives to achievement?

A cut in the corporate tax rate to 20% from 35% is also much too modest. How about just eliminating it altogether? That also does away with the gimmicky one-time tax repatriation benefit he proposes. Let's make the U.S. a magnet for capital investment from around the world. With that investment comes all the benefits we crave such as higher levels of employment, greater productivity, and rising wages.

That said, if the tax must stay then a transition to a territorial system that Bush proposes at least ensures corporate income is taxed in the country that is actually earned. This is a major improvement over current law. The U.S. is the only major developed nation that taxes income without regard to where it is actually earned.

I champion Bush's elimination of certain itemized deductions, including the state and local taxes deduction and the business interest deduction. The deduction for state and local taxes simply subsidizes profligate governments, such as California, New Jersey, and New York. The deduction of business interest distorts business financing decisions by favoring the issuance of debt over equity.

Unfortunately, he preserves the charitable contribution deduction and the worst one of all, the mortgage interest deduction. Americans are incredibly generous people and don't require a taxpayer subsidy to support worthy charities, places of worship, or those in need. The deduction of mortgage interest is bad policy simply because it subsidizes homeownership. The last thing we need is to have even more precious capital sunk into non-productive assets such as housing. It also is unfair to those taxpayers who decide that renting is a better option.

My favorite part of Bush's plan is the elimination of the estate tax. It is a compliance nightmare, raises very little revenue for the government, and is patently unfair.

Bush wants to expand the Earned Income Tax Credit (EITC), a sop to the political left, and is just another form of income redistribution. Persons who do not pay income taxes should not be receiving cash payments from those that do.

Finally, there is no mention of cutting or eliminating the capital gains tax, easily the most destructive tax of all. Capital investment is a vital ingredient to the creation of jobs. The tax code should treat the gains from risk-taking activity as lightly as possible.

In summary, Bush's tax plan has some admirable elements but is unfortunately too timid. It lacks the boldness that would help begin to set his candidacy apart from his main rivals.

Dan Mitchell provides his thoughts in a blog post at the Cato Institute here.
The WSJ's editorial page staff gives the Bush plan a thumbs up here.