About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline
LOG IN
LOG IN

98 IRET Congressional Advisory 1 (2000)

handle is hein.taxfoundation/iretcgadv0095 and id is 1 raw text is: February 24, 2000 No. 98 JOHN McCAIN'S TAX PLAN - A MIXED BAG The tax plan issued by Senator John McCain in his bid for the Republican Party's Presidential nomination prompts a response of, Yes, but... The McCain plan includes some welcome The McCain income tax cuts that would welcome inec reduce tax burdens and biases. w d -edue But the plan would offset wouid ruce almost two thirds of the tax bias relief with revenue-raising almost two th provisions that would increase with revenue tax burdens and biases that would in elsewhere. Thus, the McCain and biases els plan would take back with one hand the majority of what it gave with the other. On net, Senator McCain would dedicate less than 7% of the total federal budget surplus projected for the next 5 years to income and estate tax relief. (Senator McCain prepared his plan using the budget surplus projections that government estimators calculated last summer. The percentages cited here refer to those projections. The percentages going to tax relief would be lower relative to the projections issued by the Congressional Budget Office this January.) Senator McCain and his advisors have described their plan as moving gradually toward a flat tax from the bottom up. A well designed flat tax, however, requires both a single low rate and a principled reform of the tax base. While some parts of the McCain plan do move in that direction, other parts move away from the proper tax base. Senator McCain offers a set of principles to guide Social Security reform, including giving people the choice of using private retirement accounts as an alternative to Social Security. But Senator McCain would leave the details of the reform to a bipartisan panel appointed after the Presidential election. Despite the absence of a specific Social Security reform proposal, Senator McCain wants to reserve for Social Security 89% of the total federal budget surplus projected for the next 5 years (100% of the off-budget surplus and 62% of the on-budget surplus). With no concrete reform proposal on the table, it is uncertain now how much of the plan includes some ime tax cuts that tax burdens and ~e plan would offset rds of the tax ielief -raising povisions cr-ease tax buridens ewvher-e. reserved funds would go to meaningful Social Security reform and how much to accounting gimmicks or short- term band-aids. Income Taxes The federal income tax is strongly biased against saving and investment. Earnings used for immediate consumption are generally taxed only once. (There is no additional federal tax on consumption purchases and the enjoyment provided by consumption, except for a few products subject to excise taxes.) However, earnings that are saved are taxed repeatedly. (There is income tax on the earnings and also income tax on the returns on the saving.) The basic bias is worsened by other features of the tax code. For example, some provisions understate expenses required to produce revenues, which causes income to be overstated. A special problem with investments in corporate equity is that the combination of the individual and corporate income taxes creates two tiers of income tax on the same income. The capital gains tax is another problem because it places an up-front tax on the capitalized value of future earnings that will also Institute for Research on the Economics of Taxation IRET is a non-profit, tax exempt 501(c)(3) economic policy research and educational organization devoted to informing the public about policies that will promote economic growth and efficient operation of the free market economy. 1730 K Street, N., Suite 910, Washington, D.C. 20006 Voice 202-463-1400 * Fax 202-463-6199 0 Internet www. ret.org

What Is HeinOnline?

HeinOnline is a subscription-based resource containing thousands of academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.



Contact us for annual subscription options:

Contact Us

Already a HeinOnline Subscriber?

Log In

profiles profiles most