The Santorum Plan: Tax Cuts for (Nearly) All

By :: January 19th, 2012

Rick Santorum, who may have won the Iowa caucuses after all, favors a huge broad-based tax cut that would massively increase the budget deficit. According to new estimates by my colleagues at the Tax Policy Center, the former Pennsylvania senator would cut taxes for nearly all households making $40,000 or more. But the impact on the deficit would be enormous: He’d cut taxes by roughly $1 trillion in 2015 alone.

Unlike Mitt Romney, who would slash taxes for those with high-incomes while raising taxes for many low- and moderate-income households, Santorum would boost after-tax incomes for the vast majority of Americans. Only a handful would pay more than they do today.

For individuals, Santorum would start by extending the 2001-2010 tax cuts that are due to expire at the end of this year. But he’d go far beyond that. He’d collapse today’s six tax brackets to just two—10 percent and 28 percent. He’d triple the personal exemption for children, cut taxes on dividends and capital gains from 15 percent to 12 percent, and repeal the Alternative Minimum Tax, the estate tax, and the tax increases in the 2010 health reform law.  

For companies, he’s cut the corporate tax rate in half, to 17.5 percent, and allow full first-year expensing of capital equipment. Domestic manufacturing companies would owe no taxes at all. Multinationals could bring profits back to the U.S. at a 5.25 percent tax rate. They’d owe no taxes at all on repatriated earnings they invest in plant and equipment.    

As always, measuring the effect of the Santorum tax plan depends on whether or not you assume the 2001-2010 tax cuts are extended. But either way, both the tax cuts for high-income households and the increase in the deficit would be enormous.

Even if you assume the 2011 law is made permanent, the top 0.1 percent (who make more than $2.9 million and average $8.4 million) would get an average tax cut of more than $1.3 million in 2015. By contrast, a typical household making less than $20,000 would get a tax cut of $39. Middle-income households making between about $50,000 and $75,000 would get a tax cut of about $2,000. This largess would add about $900 billion to the deficit in 2015.

If you prefer to compare the Santorum plan to a world where the 2001-2010 tax cuts have expired, they look even more generous. The top 0.1 percent would get an average tax cut of $1.7 million. Those making less than $20,000 would see their taxes cut by $265, and those in the middle would get a tax cut of $3,500. Santorum would increase the deficit by $1.3 trillion in 2015 compared to a budget without the Bush/Obama tax cuts.       

The TPC analysis of Santorum’s tax plan comes with the usual caveats. It is static, and thus does not include new revenues generated by economic growth. Much of the benefit to high-income households would come from Santorum’s deep cuts in corporate taxes since TPC assumes those taxes ultimately are paid by owners of capital.

One final caveat: Santorum’s plan includes few details. For instance, while he proposes two individual tax rates, he does not say what the brackets are. Normally, TPC works with the campaigns to clarify these specifics, but the Santorum campaign did not respond to TPC’s requests for information. Thus, the estimates include some heroic assumptions.

Still, like his opponents in the race for the GOP’s presidential nomination, Santorum is proposing extremely generous tax cuts at the price of big increases in the budget deficit.

10Comments

  1. The Santorum Plan: Tax Cuts for (Nearly) All | Tax Information  ::  12:52 pm on January 19th, 2012:

    […] the original post here: The Santorum Plan: Tax Cuts for (Nearly) All Posted in News Tags: campaign 2012, deficit, policy-center, rick santorum, santorum, tax-cuts, […]

  2. Michael Bindner  ::  3:38 pm on January 19th, 2012:

    Santorum may have won Iowa, but his chances of going much farther are slim given his likely poor performance this Saturday. Also, his plan will likely have to pass through a Senate where compromise is necessary to not only pass his plan, but to prevent the Bush cuts from coming back in full force, as a defeated Obama would likely allow to happen. His plan would be better if his tripling of the exemption became a refundable credit of either that amount or the current exemption amount. Of course, no tax plan will be seriously considered if a compromise is reached on tax reform to pay for extending the payroll tax cut and a tax repatriation holiday or during a lame duck.

  3. AMTbuff  ::  3:48 pm on January 19th, 2012:

    TPC assumes that corporate taxes ultimately are paid by owners of capital? Isn’t the conventional thinking that customers bear most of that tax?

    Corporations need to earn a market rate of return after taxes, competitive with all sorts of investment opportunities other than US C-corps. That market rate of return will barely budge when the corporate tax increases. The tax money must come either from customers or employees. Neither group is rich.

    This is why reduction or elimination of the corporate income tax has never been considered an extreme right-wing idea. It will not happen because it makes zero political sense, but it does make some economic sense.

  4. Ralph H  ::  6:03 pm on January 19th, 2012:

    In fact if the TPC analysis is used, and dividends are INCREASED by the tax savings then even at 12% the rich will pay more taxes than before on dividends. Of course they will be happy for increased income but will still pay more.

    If Obama can claim a spending multiplier on consumer spending for extended unemployment and payroll taxes then surely there should be some sort of benefit to reduced tax spending for corporations?

  5. Vivian Darkbloom  ::  8:07 am on January 20th, 2012:

    Estimates of who bears the burden of corporate income tax have been all over the board, depending on whch economist you ask. You”ll get a different answer depending on whether you assume an open or closed economy. The answer also largely depends on which time frame one considers—a factor that is inherent in *all* economic analysis.

    There does seem to be some general consensus that in the short term, capital bears the brunt of the tax, and that high-income owners of capital bear a progressively high proportion of that. Most economists seem to agree that “over the very long term” an increasing percentage of the tax is shifted to others. But, of course, Mr. Keynes says that in the long term (not just very long term) we are all dead. If one wants to take a “very long view” then this is at odds with the “very short view” we normally take when assessing the budgetary and distributional effects of tax policy choices. If we are using a short time frame (say 5-10 years, which is typical) then should not the estimates of who bears the burden of the corporate tax (or any other tax) be consistent with that time frame? This is the same problem with so-called fiscal multipliers: over a 5 year period one might get a multiplier of greater than 1; however, over the long term the answer is quite different.

    All things considered, though, I agree. We should simply eliminate the corporate income tax. That should make everyone happy and the whole industry concerned with trying to figure out who bears the tax could be eliminated. One could then concentrate on how to effectively administer a system in which there is no corporate income tax , e.g., complete transparency or separate entity treatment with safeguards against unwarranted accumulation of untaxed earnings through revised personal holding company rules, etc. The problems with eliminating the corporate income tax are practical, not theoretical. And, of course, they are also political.

  6. Five reasons Rick Santorum’s policies would be a disaster for the middle class | US Democrats  ::  1:00 pm on February 20th, 2012:

    […] of the middle class and our deficit. His plan would give the top 0.1 percent an average tax cut of $1.3 million—and add $900 billion to the deficit in 2015. Even the conservative think tank American […]

  7. Five reasons Rick Santorum’s policies would be a disaster for the middle class | News Bipartisan Report  ::  8:00 pm on February 20th, 2012:

    […] of the middle class and our deficit. His plan would give the top 0.1 percent an average tax cut of $1.3 million—and add $900 billion to the deficit in 2015. Even the conservative think tank American […]

  8. Five reasons Rick Santorum’s policies would be a disaster for the middle class | FavStocks  ::  3:32 am on February 21st, 2012:

    […] of the middle class and our deficit. His plan would give the top 0.1 percent an average tax cut of $1.3 million—and add $900 billion to the deficit in 2015. Even the conservative think tank American […]

  9. Five reasons Rick Santorum’s policies would be a disaster for the middle class | My Legal Right  ::  8:37 pm on February 27th, 2012:

    […] of the middle class and our deficit. His plan would give the top 0.1 percent an average tax cut of $1.3 million—and add $900 billion to the deficit in 2015. Even the conservative think tank American […]

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