Giuliani’s tax plan

OPINION:

After scoring in single digits in both the Iowa caucuses (4 percent) and the New Hampshire primary (9 percent) without winning a single convention delegate from either state, Rudy Giuliani unveiled last week his tax-cut plan.

Compared to a revenue baseline that assumes the Bush tax cuts expire at the end of 2010 and the alternative minimum tax (AMT) is not indexed for inflation, the Giuliani plan, according to campaign spokesmen, would chop about $6 trillion from projected static revenues over a 10-year period beginning in 2009. (That’s an average of $600 billion per year.)

Back-of-the-envelope calculations, based on the 10-year (2008-17) budget outlook released by the Congressional Budget Office (CBO) in August, suggest that extending President Bush’s 2001 and 2003 tax cuts and indexing the AMT for inflation would reduce projected revenues by about $3.5 trillion over the 2009-18 period. That means that Mr. Giuliani’s plan would slash revenues by an additional $2.5 trillion (an average of $250 billion per year). In fact, the difference between the Giuliani proposal and Bush policy is actually much larger than the $2.5 trillion indicated by updating the CBO calculations. That is because the White House has repeatedly stated that any AMT fix would have to be revenue-neutral. Mr. Giuliani’s plan does not call for revenue neutrality for the roughly $1.2 trillion AMT fix over the 2009-18 period.

Beyond making the Bush tax cuts permanent (including the repeal of the estate tax that occurs in 2010) and permanently indexing the AMT for inflation (before repealing the AMT altogether), Mr. Giuliani proposes to reduce the top capital-gains and dividend tax rate from today’s level of 15 percent to 10 percent. (In 2000, the top capital-gains rate was 20 percent and the top dividend tax rate was 39.6 percent.) In addition, capital gains realized after the Giuliani plan goes into effect would be indexed for inflation. Mr. Giuliani would establish tax-free personal savings accounts and reduce the top corporate income-tax rate from 35 percent to 25 percent.

The Giuliani plan would also create a fair and simple tax (FAST) system and a one-page IRS-filing form as an alternative option. While not offering a standard deduction, the FAST system would retain the $1,000 child tax credit and the most popular itemized deductions, including mortgage interest, state and local taxes and charitable contributions, as well as a “health-care exemption” up to $15,000 for families that purchase health insurance on the private market. The FAST form would apply three tax rates to taxable income: 10 percent up to $40,000, 15 percent between $40,000 and $150,000 and 30 percent above $150,000.

Six trillion dollars?