Gingrich tax ‘plan’ starves government, feeds the wealthy, rests on flawed assumptions

by Linda Beale

Gingrich tax ‘plan’ starves government, feeds the wealthy, rests on flawed assumptions

In case you hadn’t heard about it, Gingrich would offer taxpayers a choice to pay tax under current policy or at a 15% rate, with zero taxation of capital gains, dividends and interest that accrues mostly to the rich and uberrich, while corporate tax rate would be reduced to a mere 12.5%.  For the rich, the 15% rate on their ordinary income and the 0% rate on their predominant form of income (capital gains and income from capital) would be a windfall.  For corporations, it would practically amount to the elimination of the corporate tax.  It should be no surprise that tax revenues would decline substantially: the Tax Policy Center study of Gingrich’s planestimates by $1.3 trillion over a decade.  While the lower two quintiles would get an average tax cut of about $440, the top 1% (starting at incomes of about $629,000) would get an average $344,000 cut and the top 0.1% (starting at incomes of about 2.868 million) an average $1.9 million cut.  Id.

See also Study: Gingrich Plan would provide big breaks for rich, blow huge hole in budget deficit, Washington Post (December 12, 2011); Rubin et al, Gingrich Plan to Add $1.3 trillion to Deficit, Study Finds, Bloomberg (Dec. 12, 2011).

Gingrich’s rationale is one that the right-wing American Enterprise Institute strongly supports–the tired old reaganomics rationale that eliminating taxes on capital will create new investments.  See, e.g., Why Romney is Wrong and Gingrich is Right on Capital Gains Taxes, AEI ( Dec. 12, 2011).  This theory is hogwash–lowering the return on investment by the piddling tax (whether 15% or 20%) will not keep folks from investing.  Folks will still make profits and they will still invest those profits, even if they have to pay taxes.  Paying no tax on dividends and capital gains won’t make the rich suddenly invest in entreprenuerial activities, my friends.  (Simply trading corporate stocks on the secondary market is not, by the way, entrepreneurial.)

The Gingrich website also objects that this plan is really good for everybody.

An optional flat tax reform will be simple: Tax returns can be done on one sheet of paper,” the website says. “Subtract from income a standard deduction and deductions for charity and home ownership, multiply the result by the fixed, single rate of taxation of at most 15 percent, and the process is over.”  Wash. Post, above (quoting the website).

Folks, the hardest part of the income tax is figuring out whether you have income and how it is characterized (capital or ordinary).  Neither of those two difficulties disappears under Gingrich’s system.  Furthermore, ordinary fold really don’t have a very difficult time with their tax returns–they have wage income (withheld against), report the standard deduction and personal exemptions, and get a refund of part of the amount withheld.  The appeal to simplicity is a cover for the real purpose–to provide an unprecedented tax break to the wealthiest Americans at a time when the right is targeting Medicare and Social Security for cuts.  This is just one more example of class warfare from the right wing.

originally published at ataxingmatter