What the GOP Candidates’ Tax Plans Leave Out

By :: November 4th, 2011

The economy needs fixing, all agree. So naturally, every Republican presidential candidate has a plan for changing the federal tax system. Herman Cain has his 9-9-9 plan (or 9-0-9 if you’re low-income) and Rick Perry touts a 20 percent flat tax. Newt Gingrich would move to a consumption tax while Ron Paul would kiss the income tax goodbye. And almost all would  cut back or eliminate refundable tax credits.

Refundable credits provide significant help to low- and middle-income families by not only zeroing out their income tax liability but also by giving them cash payments. Each year the earned income tax credit (EITC) and the child tax credit (CTC) deliver more than $109 billion of cash assistance, mostly to families with children.

This year, EITC  subsidies will  be as much as $3,100 for families with one child, $5,100 for families with two children, or $5,700 for families with three or more. For more than 35 years, both Republicans and Democrats have praised the credit and repeatedly expanded its reach and size. And academic research  confirmes that the credit encourages people to work and lifts people out of poverty—an estimated 6 million individuals in 2009.

The Child Tax Credit provides up to a $1,000 per child to low- and middle-income families. It’s one of few support programs where a large share goes to middle-income families. That’s important in an economy where the middle class is feeling squeezed.

Despite the recognized success of both credits, the GOP candidates reveal plan after plan that either ignores refundable credits or eliminates them. The plans instead feature consumption style taxes, that, absent poverty grants, would hit the poor hard. By necessity, the poor spend all of their income so would pay tax on every dollar they get. Higher income households that can save would pay no tax on the funds they sock away.

For better or worse, the EITC and the CTC play a key role in our nation’s social safety net, helping the neediest. The candidates may not talk about shrinking or scrapping them, but just read the (not so) fine print. Even plans that claim to protect low-income families by exempting them from some taxes aren’t neutral. By cutting back or eliminating refundable credits, these plans greatly harm low-income families.


  1. Michael Bindner  ::  4:00 pm on November 4th, 2011:

    Its hard to maintain a subsidy for children when you shift to consumption taxes without setting up a bureaucracy to do it. If part of the equation is a VAT-like net business receipts tax replacing most income tax revenue, a consolidated Child Tax Credit can be taken against that tax and paid as wages. The minimum wage must also be increased to account for the EITC going away and to make sure no one is paid more in tax credits than wages. Reducing the mortgage interest deduction should also be dedicted to the Child Tax Credit increase, rather than using the money to lower rates or balance the budget – the reason being that the big expense for an additional child is often housing. If the tax is set high enough to encourage children (and discourage abortion) it can also be sold as a pro-life credit – although some pro-lifers oddly don’t support such things, as they are as much anti-sex as anti-abortion. They should be ashamed.

  2. INTJ  ::  4:10 pm on November 4th, 2011:

    Tax policy should be about raising enough revenue for government to meet its constitutional obligations. What it is in practice, however, is a hodge-podge of incentives, welfare, archaic (and often moronic) rules, that serves no one’s interest, save those – like G.E. – who get out of paying anything. It is hard to take seriously any treatise from a “tax policy center” that does not recognize this basic truth.

  3. Clay Willis  ::  7:47 pm on November 4th, 2011:

    In government, business or small groups, whatever the venue, if you want to find where the power resides, “follow the money”. It’s the cynical “golden rule”: whoever has the gold, rules. Nowhere is this more evident than in government. The power to tax is the ultimate power of government. The power to tax is the power to control business, commerce and individuals.

    Karl Marx and Frederich Engels in their Communist Manifesto posited as the second of their steps to converting a free market, capitalist system to a communist system the introduction of “a heavy, progressive income tax”. In this instance “progressive” means that the more income the greater the rate of taxation.

    One would hope that a Tax Policy Center would be aware of that document and its purpose.

    Why then do you resist any effort to eliminate the Marxist income tax and replace it with another system that is not intended to lead to socialism/communism? There can be only one reason if you “follow the money”: you must like the present system or at least like the way the money flows from that system giving government and favored individuals power and wealth.

    There are two forces propelling the opposition to eliminating the Marxist system: 1. Dedicated Marxists (socialists/communists), true believers who want the USA to become a socialist country and 2. Those that are called “useful idiots” – those who unknowingly follow the teachings of Marx because being for the “common man” or the “poor” makes them feel superior when in fact Marxism is the greatest oppressor of all political systems ever devised. (That’s why they’re called “idiots”.)

    Keep that in mind as you observe the politics leading up to next year’s Presidential primaries and the general election of the President and members of Congress. Watch for those who claim to be for changing the system but propose leaving the income tax system in place and merely changing the rates or advocating a “flat tax”.

    Watch also people like Elaine Maag, who in this article advocates confiscating taxes of working people to be redistributed to those whose income falls below some standard set by government. The bureaucracy necessary for sustaining the “child tax credit” and the EITC funnel power to the bureaucracy and the more people receiving this largesse from the tax payers, the more powerful that bureaucracy.

    The only candidate so far who is advocating eliminating the graduated income tax is Herman Cain. He proposes 3 phases: 1. a reduction of corporate and personal income tax rates 2. Installing the 9-9-9 plan as a transition to 3. A national retail sales tax (the Fair Tax).

    My chief disappointment with Rick Perry is that he formerly advocated the Fair Tax but his plan released last week does not mention eliminating the Marxist tax system. In fact, he deliberately leaves the present system in place by allowing people to choose whether to file their taxes as they have been.

    The present system cannot be uninstalled rapidly; it would likely take 3 – 7 years but it does offer a way to stop our slide into socialism that no one else is offering. If you are not in favor of converting our system that has created more wealth for the “common man” that any other system ever devised then “follow the money” and find a way out. If you don’t like Cain’s proposal, then come up with another to eliminate the Marxist system.

    Everything else including oppressive regulations is based on the Marxist tax system. Eliminate that and the oppressive regulations will go away once they cannot be used to game the system.

    It truly is a benchmark and should be the primary consideration for the primaries and for the general election when one considers the state of our economy.

  4. Michael Bindner  ::  12:04 am on November 5th, 2011:

    The income tax likely did not originate with Marx – it was part of their “short of revolution” platform. Marx and Engels wanted an uprising, pure and simple. Cain’s system, now that he has added a floor for nonpayment of income taxes, is actually technically progressive.

    Cain, of course, has no chance, because once his proposal to get the federal government “out of the way” on entitlements – which generally means zeroing out funding – his Tea Party support among seniors, any crossover voting based on demographics and most importantly any state GOP party committee support will evaporate. You can’t propose gutting Medicaid and expect to be elected President of the United States.

  5. Pronghorn  ::  1:42 pm on November 5th, 2011:

    Eliminating federal govt charity like the EITC is not a problem. It can be replaced by state/local govt charity and private charity. That would be lawful under the US Constitution, unlike the current charity programs. It would also keep the power and money closer to the citizens, make programs more adaptable and accountable, likely more effective and efficient.

  6. Clay Willis  ::  8:52 am on November 6th, 2011:

    Today’s equivalent of Marx’s violent revolution could be extrapolated to the “Occupy Wall Street” activists. Short of armed revolution, Marx and Engels proposed 10 steps to convert from capitalist to communist systems: 1 of those ten was a graduated income tax.
    “Progressive” when applied to taxes means increasing rates as income increases. Cain’s elimination of income taxes on those below the poverty level does NOT mean that any pays a higher RATE than anyone else who pays the tax.
    If voters are happy with the present economy and size of the government, then you would be correct. However there WILL be massive change in 2012 IMHO — more than the 2010 Congressional elections.
    UNLESS the Republican, big-government establishment is able to wipe out Cain, Gingrich and Perry and give us the equivalent of Dole or McCain, i.e. Romney.
    In that case we’ll remain on the same path to national bankrupcy and social chaos.
    If I understand you correctly, you’re stating that once a Socialist program is in place it can never be abolished. I would point to the national welfare changes made by Gingrich in the 1990’s to show that such programs can be GRADUALLy eliminated.
    It takes great courage because the leftists and their cohorts in the media attempt to destroy anyone who proposes change to these socialist programs.

  7. Clay Willis  ::  8:56 am on November 6th, 2011:

    That’s a great point Pronghorn: those who partake of the government tax teat must be weaned gradually and returning those programs to 50-state administration places the accountability on a much more local level.

  8. russ in nc  ::  5:26 pm on November 6th, 2011:

    Of the 109 billion dollars of EITC and CTC how much of it is fraudulent claims? Answer: a large percentage. And how much of it gets diverted through fees and to Banks (CHASE) and tax preparation firms (H R BLOCK) and software companies (Turbo Tax)? Another large percentage. It would be far better to replace the federal EITC and CTC with State Welfare Assistance programs.

  9. russ in nc  ::  5:35 pm on November 6th, 2011:

    I’ll be applying for Social Security in three years and Medicare in six years. I won’t be the only one either. What’s going to happen to the payroll tax rate to pay for me and 20 million others just like me? It’s now 15.3%. I’m thinking it will have to get close to 25%.

  10. FairTax Guy22  ::  11:40 am on November 10th, 2011:

    I am a student at Ivy Tech Community College in Indiana. We have been assigned a project to find information on the Fair Tax and to create a persuasive presentation to either support or defend the Fair Tax proposal. I am interested in finding more information on the effects of the lower and middle income classes, and specifically the effects on mortgages and property taxes. Are the current tax plans being developed by the GOP presidential candidates supposed to ignore / remove the mortgage deduction? Are any considerations being made for property taxes? Any information you could provide me with would be greatly appreciated.

  11. Fair Tax Guy #98  ::  9:42 pm on November 16th, 2011:

    The Fair Tax Plan is a great idea. The issue is to keep Congress from adding and/or changing the tax structure without the approval of the tax payers. This is what got us in the mess we are in today. Our politicians in Washington have no limits to what or how much they can tax the voting citizens and when they run out of money for budgets, they rob from what is available or increase taxes or create new taxes to cover their spending habits.
    Let’s get a check and balance system to control Congress from spending us into bankruptcy.

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