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Questions About What's in Trump's Returns Persist
POSTED ON MAR. 14, 2016
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PAUL C. BARTON
As billionaire real estate investor and presidential candidate Donald Trump amasses
more Republican primary victories, theories mount about what could be lurking in his
federal tax returns documents he has so far refused to release.
The latest comes from Jay Soled, tax law professor at Rutgers University, who wonders
if Trump's returns indicate his use of socalled captive insurance companies, which the
IRS has long been wary of because of their potential to serve as a tax dodge.
The term refers to special entities or subsidiaries formed by businesses large and small
to insure aspects of their operations when traditional insurance is either prohibitively
expensive or unavailable to cover some contingencies. The parent company makes
payments to the captive insurers that are regarded as premiums and are taxdeductible
for the parent.
"Don't be surprised to learn that Donald utilized some captive insurance companies to
reduce his tax burden," Soled told Tax Analysts. "Do I have evidence of this? No, but
many, many folks of his wealth class were employing this strategy" during the years
Trump says are under audit, Soled says.
Trump says he has been unfairly audited many times over the past 12 years and is
currently under audit, leaving him unable to release his returns. While many tax law
observers say an audit is no legal bar to releasing returns and the IRS has said the
same Trump has refused to budge. (Prior coverage .)

Captive Insurance Issues

Meanwhile, real estate is regarded as among the industries making the most use of
captive insurance, according to the Center for Insurance Policy and Research.
Trump's campaign staff, however, declined to respond to questions about whether he
uses them.
And even if Trump someday produces returns showing one or more captives, that is far
from signifying abuse, tax law practitioners say. "There are many real estate developers
who use captives quite legitimately for wholly nontax purposes, including insuring
against construction defects, environmental exposure, contractor liability, and the like.
But there are also many real estate developers who have in the past misused their
captive as a tax shelter," said Jay Adkisson of Riser Adkisson LLP in Newport Beach,
California.
Adkisson added, "It would be plainly improper, however, to attribute foul tax motives to a
real estate developer simply because they own a captive, in the absence of other
substantial facts indicating that they are misusing it."
Others say Trump's business empire is of the size it would likely rely on larger captives
rather than the section 831(b) variety, which are characteristic of smaller, closely held
companies.
"I think it's extremely likely that he would," Stephen Moskowitz of Moskowitz LLP in San
Francisco, said about Trump using several larger captives. Not only that, Moskowitz
said, there is a good chance at least some of them are located offshore, where
regulations are less stringent. Another aspect of captives, he said, is that their premium
income is taxexcludable if it's either targeted toward reserves by a larger captive or falls
under $1.2 million for smaller "microcaptives." And 70 percent of investment income for
either is also excludable.
Regardless of its size, the IRS wants to know if it is really providing insurance,
practitioners say.

"The IRS is looking at whether the captive structure represents insurance, for federal tax
purposes, and [insurance is] a term for which numerous facts and circumstances will be
considered," said David J. Slenn, an attorney with Quarles & Brady LLP in Naples,
Florida. "At the heart of insurance is risk shifting and risk distribution, and whether the
arrangement was insurance in the commonly accepted sense. Of course you must be
dealing with insurance risk which is also a disputed issue as of late." (Prior analysis
.)
While the IRS has questioned the legitimacy of both large and small captives while
losing several recent cases involving larger ones it is the 831(b) versions that have
received the most negative publicity of late. In April 2015 The New York Times
described 831(b) arrangements in which wealthy individuals were transferring income of
nearly $1 million a year to captive insurance companies and calling it premium
payments so that they could claim the payments as a tax deduction. They would then
borrow from the captive to maintain their lifestyles.
For their part, larger captives can also benefit individuals, such as through dividends to
shareholders, practitioners say. And it's possible Trump could be involved in both large
and small captive insurers, although such instances are "very rare," Adkisson said.

Political Fallout

Regardless, the escalating speculation about what's in Trump's returns could eventually
prove politically damaging, especially if it's believed he benefits from complicated
arrangements not available to average taxpayers, Cal Jillson, political scientist at
Southern Methodist University, told Tax Analysts.
Jillson said the wealthy like Trump have the means to employ lawyers and accountants
to find tax preferences others can't. "For others, it's 'this is what you owe, now pay up!'"
he said.
David Cay Johnston, a Pulitzer Prizewinning reporter on tax issues, offered one such
example when he wrote March 8 in USA Today that Trump has a history of escaping
income taxes by reporting so much real estate depreciation that he has negative income
in the eyes of the IRS. However, the negative income never dented his lifestyle,
Johnston wrote.

And The Wall Street Journal reported March 10 that Trump has donated development
rights to land he owns but speculated that he may have received large conservation
easement tax benefits for those donations.
Other possible finds in Trump's tax returns that could prove damaging, Jillson said,
would be effective tax rates that seem low considering his wealth or relatively little
contributed to charities or churches. Former Massachusetts Gov. Mitt Romney, the
2012 GOP nominee, had tax returns that showed extensive donations to the Mormon
Church. "Mitt Romney tithed," Jillson said. "I doubt Trump tithes." Republican
evangelicals might be disappointed by low or nongiving to churches, he added.
But Trump so far seems to have escaped political damage from refusing to release his
returns. If he turns out to be the Republican nominee, could he maintain that refusal
through the general election? "You wouldn't think so," Jillson said, but added that much
will depend on how smartly his opponent uses the issue against him. "He's not in a
business situation but in a political environment, where it's expected you will release
your returns," the SMU professor said.
One possibility, he said, is Trump holding his returns hostage until Hillary Clinton, if she
becomes the Democratic nominee, releases more information about the finances of the
Clinton Foundation.
Others say the pressure on Trump will have to increase considerably for him to comply.
"He will only release when the pain of not releasing exceeds the anticipated pain if he
does release them. [It's] a basic law of politics," said Charlie Cook of The Cook Political
Report. "The media has allowed Trump to play by a different set of rules than other
candidates have."
But Cook said he believes the returns, if and when released, would likely be "politically
problematic."
Wendy Schiller, political scientist at Brown University, added, "I do think that if Trump
outright refuses to release his tax returns, voters will believe that Trump has something
to hide either because he is not as wealthy as he says he is, or he has not donated to
charity as he says he has, or some combination of both. Voters will accept bragging,
and a large ego, but not if it turns out to be based on a lie."
Ferrel Guillory, political analyst at the University of North Carolina, said voters have
come to expect politicians to release their returns "as insight into their veracity, integrity,
and economic lives."

Mortgage Deduction Backers Spend Heavily on
Politics
POSTED ON MAR. 7, 2016
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PAUL C. BARTON
Although he's now bowed out of the 2016 presidential race, retired neurosurgeon Ben Carson
left his mark in one respect: In a field that once had 23 major party presidential candidates, he
was the only one to openly advocate elimination of the mortgage interest deduction.
Political and tax observers are not surprised. The mortgage interest deduction for homeowners
has long been recognized as one of the most untouchable preferences the tax code offers, and
it is supported by an influential lobby.
The tax benefit can be traced to the birth of the income tax in 1913 when Congress created a
deduction for interest costs, though not necessarily intending it as a way to juice housing
construction. But by the late 1940s, it had evolved into a wildly popular preference associated
with rapidly expanding homeownership.
According to projections of the Joint Committee on Taxation issued in December 2015
(JCX14115 ), the deduction will cost the federal government $77 billion during fiscal 2016,
increasing to $96.4 billion by fiscal 2019. The JCT puts its fiveyear cost at $419.8 billion a big
price tag for a deduction with mixed results, many economists argue.

Candidates' Positions

Presidential candidates routinely talk about eliminating "carveouts" and "loopholes" in the tax
code but nearly always make an exception for mortgage interest.
This year has been no different, although Democratic candidates Hillary Clinton, the former
secretary of state, and Bernie Sanders, the independent senator from Vermont, have proposed
limiting the mortgage interest deduction and most others as well to 28 cents on the dollar.
For his part, Republican Sen. Marco Rubio of Florida talks of a "reformed" deduction, limiting it
to mortgages of no more than $300,000, down from the current $1 million. And former
Republican Gov. Mike Huckabee of Arkansas, when he was still in the race, called for a national
sales tax, implying elimination of the income tax and all its associated preferences.
But it was Carson, a Florida resident and formerly of Johns Hopkins Children's Center in
Baltimore, who really got attention when he called for getting rid of the deduction during a
November 10 debate in Milwaukee.
"Now, I will say that there are a lot of people who say if you get rid of the deductions, you ruin
the American dream because, you know, [the] home mortgage deduction," Carson said. "But the

fact of the matter is, people had homes before 1913 when we introduced the federal income tax,
and later after that started deductions." (Prior coverage .)
When Carson released his formal tax plan January 4, he said, "The overwhelming majority of
Americans do not benefit from these itemized deductions." (Prior coverage .)
Whenever there is talk of tampering with the tax break, however, powerful lobbying groups such
as the National Association of Realtors and the National Association of Home Builders react
quickly as former House Ways and Means Committee Chair Dave Camp found out in 2014
when he proposed limiting the eligible amount of mortgage debt to $500,000.
The Realtors' group immediately warned that such a proposal threatened economic harm
"to every single American, either directly or indirectly." And the National Association of Home
Builders argued that the deduction "supports the aspirations of families at all income levels
to become home owners, and Americans overwhelmingly oppose any action by Congress to
tamper with" it.

Giving to Candidates

Meanwhile, real estate interests are heavy hitters when it comes to campaign donations to
presidential and congressional candidates.
According to figures compiled for Tax Analysts by the Center for Responsive Politics, real estate
interests had donated more than $36 million to 2016 presidential candidates as of February 5.
The total reflects money given to their official campaign committees and to outside groups,
mainly super PACs, that support their candidacies.

The leading recipient has been Sen. Ted Cruz, RTexas, with $16.04 million. Of that total,
$15.34 million reflects money that wealthy Texas real estate investors gave to super PACs,
which can receive donations of unlimited size. However, while Cruz supports continuing the
deduction, like Camp he has called for limiting it to mortgages of no more than $500,000.
Former Florida Gov. Jeb Bush, a Republican who quit the presidential race in February, had
seen $10.59 million in support from real estate interests, followed by Democratic frontrunner
Hillary Clinton at $3.28 million, Republican Sen. Marco Rubio of Florida at $1.62 million, and
Republican Gov. Chris Christie of New Jersey at $1.16 million. Christie has also suspended his
campaign.
Even Carson received $678,234.
Real estate developer Donald Trump, who says he is selffunding his campaign, has gotten
$52,998. In 2006 Trump told The New York Times that eliminating the deduction would be "a
total catastrophe" for the U.S. economy. "It will lead to a major recession, if not a depression,"
he said.
To all federal candidates, including those running for congressional seats, the real estate sector
has so far given $80.42 million in the 2016 elections, according to the Center for Responsive

Politics. In 2014 it spent $111.21 million on federal races. And in 2012, another presidential
election year, it spent $158.77 million.
Further, the industry spends heavily on lobbying, including close to $80 million in 2015, the
center's figures show.
"By far the most active player in the industry is the National Association of Realtors, which spent
$7.3 million [on campaign contributions] in the 2012 cycle, slightly favoring Republican
candidates and causes over Democratic ones," the center said, adding that the Realtors group
makes clear that it wants Congress to "leave unchanged current mortgage interest deduction
policies."

Reform Ideas

At Washington think tanks, however, are many who think the deduction is in need of serious
surgery, if not elimination. They say the evidence that it fosters homeownership is mixed at best;
for one reason, they say, the dollar benefits it provides marginal homeowners is relatively small.
"Phasing out the mortgage interest deduction would make sense as policy, but it will never
happen because it's an immensely popular deduction," Len Burman, director of the
UrbanBrookings Tax Policy Center, told Tax Analysts.
"The problem with the mortgage interest deduction, as with most other deductions, is that most
of the benefit goes to higherincome individuals," added Harry Stein, fiscal analyst with the
Center for American Progress Action Fund.
Not only are upperincome individuals more likely to own a home, he said, they are more likely
to own an expensive home, increasing the benefits of the deduction for them. Further, Stein
said, homes are often priced assuming the deduction, increasing housing costs.
One promising reform idea, he said, is to change it from a deduction to a credit, under which all
would claim the same percentage of their mortgage costs. Stein also said the ideas of Clinton
and Sanders, to limit the deduction to a certain percentage on the dollar, is worth looking at.
Overall it remains "a huge subsidy," Stein said, adding that it costs the government far more
than what's spent on assistance for lowincome housing.
Burman offered another idea. "The right answer economically would be to tax net imputed rent
(subtracting out interest, property taxes, and depreciation from the gross rental value of the
home), but that would be impossible to explain to policymakers or the public," he said.
But economist Curtis Dubay of the Heritage Foundation said the "conventional wisdom" against
the mortgage interest deduction is wrong. "Lenders are taxed on their interest income," he said.
"In that case, a deduction for the borrower prevents [taxes] from artificially reducing the amount
of borrowing and lending in the economy."
He added: "Those that are against the mortgage interest deduction often simultaneously support
interest deductions for businesses. But [both deductions] conform to the same principle that if
interest income is taxable to lenders, interest expenses should be deductible to borrowers."
But another conservative economist, Chris Edwards of the Cato Institute, said: "The mortgage
interest deduction should be eliminated with major tax reform. . . . As with nearly all deductions,
exemptions, and credits, the more you get rid of, the lower the rates can be, and the more
economic growth you get from both the more neutral base and lower rates."

Tom Kasprzak contributed to this article
No Stopping Political Nonprofits Now, Some Say
POSTED ON FEB. 25, 2016
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PAUL C. BARTON
If perception is reality, the new reality for nonprofit "social welfare" organizations is that they can
emphasize politics as much as they want and not worry in the slightest about losing their tax
exemptions.
That's what some academics, nonprofit attorneys, watchdog groups, and other observers
perceive in the wake of three recent developments affecting groups claiming tax exemptions
under section 501(c)(4):
● The February 9 disclosure by the Center for Responsive Politics that in November the
IRS quietly approved the exemption application for Crossroads GPS, widely considered
the nation's most prominent politically oriented 501(c)(4), founded in 2010 by Republican
operatives Karl Rove and Ed Gillespie. The approval of the fiveyearold application
means the IRS now considers Crossroads a social welfare group. (Prior coverage .)
● Congress in December approving language that forbids the IRS from further work in
fiscal 2016 on new rules to regulate political activity by 501(c)(4) organizations. That
provision was enacted as part of the omnibus spending and tax extenders bill (P.L.
114113 ).
● Congress, in the same bill, including language making it clearer than ever that a group
wanting to operate as a 501(c)(4) need no longer "apply" for that designation. It can
simply start operating and, within 60 days, send in a simple registration form telling the
IRS that it claims such status. However, it still must file a Form 990, "Return of
Organization Exempt From Income Tax," and could be asked to provide supporting
documentation.

But IRS audits of 501(c)(4)s are extremely rare, the Center for Public Integrity found in a 2015
review (http://www.publicintegrity.org/2015/01/22/16640/irsrarelyauditsnonprofitspoliticking).
As for Crossroads, "regardless of the actual merits of [its] application, the granting of the
application will be perceived by many as removing whatever barriers remained to the use of
501(c)(4)s as vehicles for supporting some candidates," Lloyd Hitoshi Mayer, Notre Dame law
professor, told Tax Analysts.
Advocates of campaign finance reform who have been searching for ways to contain what they
see as abuse of social welfare groups for political purposes are stunned.

The Forms 990 filed by Crossroads, they contend, show an organization that takes in hundreds
of millions of dollars per election cycle and regularly spends right up to or more than 50 percent
of its funds on trying to influence elections. They say that couldn't have been what Congress
had in mind when it established taxexempt categories more than 100 years ago. Federal law
says 501(c)(4)s are to be engaged in social welfare purposes exclusively, but IRS guidelines
require that only 51 percent of their budgets be spent on social welfare.
Now, not only is the barn door open for more political activity by social welfare groups, "this
[Crossroads] decision took the door off the barn," said Fred Wertheimer, head of Democracy 21.
"It [Crossroads GPS] is a ridiculous and unfortunate decision," added Paul S. Ryan of the
Campaign Legal Center.
And Craig Holman of Public Citizen said the IRS made a "grave mistake."

Conservatives Happy

"We have always taken compliance very seriously, so we're not surprised by the final result,"
Steven Law, president of Crossroads, told The Washington Post about getting IRS approval.
"What we were surprised by was how long it took and how people outside the IRS improperly
tried to influence and politicize the process, not just against us but against many other
lawabiding advocacy groups."
And those who have long argued the IRS has no business interpreting when a group is involved
in political speech and when it isn't couldn't be happier. They also celebrate Congress bringing
to a halt the agency's work on new rules on campaign intervention for nonprofits, which began in
November 2013.
"Those expressing outrage are many of the same groups that helped create the IRS targeting
scandal in the first place," said David Keating, president of the Center for Competitive Politics.
"They put enormous pressure on the agency to 'do something,' and that led to disaster."
He added, "The recent move into political regulation has embroiled the IRS in political fights the
Service should avoid."
Mayer said the application scandal involving Tea Party and other groups demonstrated that "the
tax law and the IRS are poorly equipped to regulate political activity and it is disastrous when
they are forced to do so."
"Those who are outraged are professionally and perennially outraged at the notion that
conservative voices might be heard on issues, causes, or candidates. They hate that," added
Cleta Mitchell of Foley & Lardner LLP, who represents several conservative groups involved in
the exempt organizations controversy.
Mitchell says the new registration option for 501(c)(4)s to begin operating more easily was
added good news. "It was never intended that the application process at the front end would be
some sort of advance program review. That is what the IRS did to the Tea Party groups, which
had never been done before," Mitchell said.
She added that the change was a littlenoticed aspect of the omnibus spending bill. "Now it is
clear that because of this provision," Form 1024, "Application for Recognition of Exemption," is
not necessary, Mitchell said. "It was not so clear previously unless you really knew what was
going on. In the future, people would be nuts to file one."

Even though a selfdeclare option existed before, many groups still wanted to go through the
approval process to reassure their donors of their status.
The new process will also help groups meet the requirements of state agencies that track
nonprofits, Mitchell says. Often, she says, those agencies will ask for a copy of the IRS approval
letter or its Form 1024, and for a selfdeclared group "that gets to be dicey." But now, she says,
"a group can just send a copy of its registration form."
But others don't see the new registration process as that big a deal. "The new process doesn't
change anything except to require early registration with the IRS," said Elizabeth J. Kingsley of
Harmon, Curran, Spielberg + Eisenberg LLP. "So a group that forms for a single election period
would still owe 990s for that year, even if dissolved before the next fiscal year just as in the
past. It's just that now, there is at least some record of their existence and claim to 501(c)(4)
status that's public long before the first 990 is filed."

2016 Impact

Long before the IRS ruling on Crossroads, watchdog groups were predicting an inordinate
impact on the 2016 elections from 501(c)(4)s, knowing how political strategists prized their
ability to protect donors' identities.
By mid2015, eight of the original 17 Republicans launching presidential campaigns were linked
to 501(c)(4) groups that paid for messages providing favorable publicity for them. (Prior
coverage .) In doing so, they attempted to walk the tightrope separating "issue advocacy,"
discussing a candidate's actions on a particular issue, from "express advocacy," explicitly urging
the candidate's election or defeat.
Also in 2015, watchdog groups complained to the IRS about the Conservative Solutions Project,
a 501(c)(4) linked to Florida Republican Sen. Marco Rubio, and Carolina Rising, a 501(c)(4)
linked to North Carolina Republican Sen. Thom Tillis's 2014 election. Both had spent so much
on campaignrelated advertising that violations of tax law were undeniable, it charged. In the
case of Carolina Rising, political activity was 97 percent of its budget, the Center for Responsive
Politics reported. Meanwhile, the Rubiorelated group, operating during his presidential
campaign, spent more than $8 million on ads favorable to the Florida senator, at one point
making it the second largest buyer of political ads in the 2016 presidential race, according to
Kantar Media. Still another 501(c)(4), Heartland Principles, "candidly admitted that it engaged
almost exclusively in political activity," Mayer said of the group's most recent Form 990.
And now there is a 501(c)(4) called Every Citizen Counts supporting Democratic presidential
contender Hillary Clinton's campaign, despite her calls to remove anonymous funding or "dark
money" from U.S. politics. The Clinton campaign declined requests for comment.
For the rest of the 2016 elections, many observers fear, all of the relevant federal agencies
the IRS, the Federal Election Commission, the SEC, and the Federal Communications
Commission will remain feckless in the face of continued 501(c)(4) spending on behalf of
2016 candidates at all levels.
Observers also note that after it launches, a 501(c)(4) doesn't have to file a Form 990 for 161/2
months, not counting easily obtainable extensions. As a result, groups could form to influence
2016 races and disband before ever having to file their returns.

And that is exactly what Robert Maguire, lead nonprofits investigator for the Center for
Responsive Politics, expects to happen. Maguire told Tax Analysts that he expects some of the
larger organizations to form "satellite groups" that target particular races, which would then
"fade away."
"Carolina Rising is the perfect example of that," he said, adding that records show it got almost
all of its funding from Crossroads. While groups like Crossroads do not have to disclose who
donates to them, they do have to show where they donated their funds.
Another concern is that an absence of 501(c)(4) regulation provides an opening for foreign
money to influence U.S. elections. Keating agreed that is something for the FEC to worry about.
"However, I'm pretty sure that if any such money is received, as long as it is put in a separate
segregated account and not used for any independent [election] expenditures, that is probably
fine," he said.

What's Next?

After what they regard as gloomy news of late, campaign reform advocates ponder where to go
from here. "It's not clear," Wertheimer said, but he added, "No one is walking away from this
fight."
One possibility is a court decision that would force the FEC to examine 501(c)(4)s and require
those that spend heavily on politics to register as political committees under section 527 of the
tax code, which would also require them to disclose donors. Public Citizen has a pending
lawsuit against the FEC in the U.S. District Court for the District of Columbia, accusing the
commission of neglecting its oversight duties in December 2013 by not requiring Crossroads to
disclose its donors. The FEC ignored the recommendations of its staff that Crossroads be
treated as a "political committee," requiring those disclosures. (Prior coverage .)
"What I'm counting on is that a number of Crossroads and IRS records used in the application
[for 501(c)(4) status] are about to be made public," Holman said. "We may find some useful
information for the lawsuit."
Another possibility, warns Gregory L. Colvin of Adler & Colvin, is that a section 527 group,
calling its activities similar to those of a political 501(c)(4), will go to court claiming that since it
has to disclose donors it is a victim of disparate treatment under tax laws. If it is successful, he
said, the "big money, no transparency character of our campaign finance system will spin even
further out of control."
Reformers had hoped President Obama would have acted by now. They have pleaded with him
to issue an executive order requiring federal contractors to disclose their political contributions,
including those made to 501(c)(4)s. They had also hoped that the SEC would require
companies to make those disclosures to shareholders and that the FCC would have required
broadcast stations to disclose the true funders behind political ads.
Watchdog groups have also tried to interest the Justice Department in investigating 501(c)(4)s.
"The Department of Justice is one agency with authority to prosecute criminal violations of our
tax and campaign finance laws," said Stephen Spaulding, attorney for Common Cause. But the
Justice Department has repeatedly declined to get involved, saying such cases are IRS matters.
Obama is "good at giving speeches but hasn't given us any action," Ryan said.

At any time, Congress could outlaw nonprofits' involvement in politics by rewriting federal
campaign laws, reform advocates say. But they don't expect that to happen as long as
Congress remains under Republican control. Dark money has overwhelmingly favored
conservative candidates and causes since the Supreme Court's 2010 decision in Citizens
United v. FEC, the Center for Responsive Politics says. (Prior coverage .)
"Ultimately, it's going to take comprehensive action on the part of Congress, the president, and
agencies like the IRS, FEC, FCC, and SEC to fully shine a light on secret money in our
elections," Spaulding said. "There is no single solution."
On the other hand, groups favoring the involvement of 501(c)(4)s in politics are hoping
Congress will cement campaign law in their favor. A group calling itself the Tax Revolution
Institute wants lawmakers to make permanent the freeze they put on the IRS rulemaking.
"If Supreme Court rulings clearly defining political activity have not been enough for the IRS,
then we agree the law should be explicit," said Dan Johnson, executive director of the group.
"However, this clarity must follow Supreme Court jurisprudence on the issue instead of limiting
constitutionally protected speech. Neither Congress nor the IRS should excuse severe limits on
free speech as simple 'clarifications' to nonprofit rules."
Meanwhile, those involved in the Bright Lines Project, a collaboration between Public Citizen
and interest groups nationwide to clarify the rules on nonprofits, say their work should still go
forward.
"Absolutely, the Bright Lines Project is pursuing a pivotal reform," Colvin said. "The ability of the
IRS to articulate and enforce a universal definition of political intervention, applicable to all the
organizations and taxpayers covered by the Internal Revenue Code, whether they operate at
the federal, state, or local level, turns upon finishing the work started in November 2013."
He added, "That work product should be released as soon as possible, so that the public can
comment upon it, testify at public hearings, and make it the best it can be.”

Inequality Figures Fuel Democrats' Plans to Tax Rich More
POSTED ON JAN. 5, 2016
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By

PAUL C. BARTON
The Gini coefficient, a measure of income or wealth inequality devised by statisticians, probably
won't get mentioned in the stump speeches of 2016 Democratic presidential candidates Hillary
Clinton, Bernie Sanders, or Martin O'Malley.
But a recent wave of studies highlighting the changes in such measures over recent decades
form the backdrop for their proposals to increase taxes on the rich.
Clinton, the former secretary of state; Sanders, the independent senator from Vermont; and
O'Malley, the former governor of Maryland, rail constantly against what they see as widening

inequality and insist the rich can afford to pay more in taxes to fund new government initiatives
that would help middleincome earners.
"The issue of wealth and income inequality is the great moral issue of our time, it is the great
economic issue of our time, and it is the great political issue of our time," Sanders says on his
campaign website.
In a document outlining his tax proposals, Sanders warns that wealth and income disparities risk
turning the United States into an "oligarchic form of society where almost all power rests with
the billionaire class."
Clinton, in a speech to the New America Foundation in May 2014, said: "Economists have
documented how the share of income and wealth going to those at the very top, not just the top
1 percent but the top 0.1 percent, the 0.01 percent of the population, has risen sharply over the
last generation. Some are calling it a throwback to the Gilded Age of the robber barons."
And O'Malley, speaking to news media in Iowa last year, lamented what he called the "greatest
concentration of wealth and power in the hands of the few that we have ever seen in this
country, perhaps just once before."
According to the UrbanBrookings Tax Policy Center, the top 1 percent is made up of 1.12
million individuals and families with an average income of $2.1 million. The top 0.1 percent is
made up of 115,000 individuals and families with an average income of $9.44 million.

What Recent Studies Show

The Gini coefficient looks at the distribution of income or wealth on a scale of 0 (all having
exactly the same income or wealth) to 1 (one person having all of either).
From the mid1980s through 2012, the income Gini in the United States went from 0.34 to 0.39,
an increase of 15 percent, according to a 2014 study by the OECD. Meanwhile, it said, the
average Gini movement across the 34nation organization was from 0.29 to 0.32.
Further, the study noted the income of the richest 10 percent in the United States is now 16
times that of the poorest 10 percent, whereas the comparable figures for other OECD members
average 9.6 times. And the top 1 percent in the United States received almost 20 percent of
pretax income in 2012, doubling its share since 1980.
A Pew Research Center analysis released in December 2014 found that the nation's
highestincome households have a median net worth nearly 70 times that of the lowestincome
families.
The Census Bureau, meanwhile, put the Gini index for income at 0.48 in 2014, a 5.9 percent
increase from 1993.
Another 2014 report, by Emmanuel Saez of the University of California at Berkeley and Gabriel
Zucman of the London School of Economics and Political Science, said the share of wealth
owned by the top 0.1 percent in the United States went from 7 percent in 1978 to 22 percent in
2012, "a level comparable to that of the early 20th Century."
Critics, however, contend these studies often misinterpret data to match their biases, that the
wealthy in the United States already pay more than their fair share in taxes, and that raising
those taxes further would do more harm than good.

Phillip W. Magness, a historian at George Mason University, contends on his website that Saez
and Zucman, along with French economist Thomas Piketty, have an "ideological disposition
toward implementing a [highly] progressive tax structure, which manifests itself in their
scholarship irrespective of the data results they obtain." (Prior coverage .)

Democratic Candidates Take Aim at Rich

Regardless, to help middleincome earners, Clinton, Sanders, and O'Malley have called for new
government spending to do such things as greatly expand aid to college students and provide
paid family and medical leave. Sanders also wants a governmentrun, singlepayer healthcare
system, while Clinton wants a $250 billion down payment on infrastructure repairs, along with
new tax credits to help with healthcare costs, help communities threatened with manufacturing
job losses, and help employers provide apprenticeship and profitsharing plans for workers.
Clinton promises to pay for her proposals by targeting unspecified "loopholes," along with asking
more of "the most fortunate" and corporations.
Sanders says he, too, will ask more of corporations and the top 0.1 percent, beginning with an
increase in the top marginal rate for individuals. While he has not said how high he would go
with the top rate, Sanders told ABC News it will be "a damn lot higher" than 39.6 percent, the
top rate currently. (Prior coverage .)
Sanders also wants a tax on highfrequency Wall Street transactions to finance free tuition at
public colleges and universities, along with a payroll tax on all workers to pay for guaranteed
family and medical leave. Further, Sanders calls for increasing estate taxes, including the
establishment of a "billionaire's surtax" on estates worth more than $1 billion.
Clinton and Sanders also both favor the Buffett rule, calling for anyone making $1 million or
more to pay an effective income tax rate of at least 30 percent.
O'Malley has called for taxing capital gains at the same rate as earned income and to create a
new 45 percent marginal rate that he says would raise $800 billion over a decade, providing
money to help college students, reduce youth unemployment, and deal with the needs of the
cities. (Prior coverage .)

Conservatives Respond

But to say the wealthy are not already paying their fair share of taxes strikes many conservative
economists as off base.
Stephen Moore of the Heritage Foundation offered Tax Analysts an analogy: "Suppose there
were a banquet for 100 people and at the end of the night it was time to split the bill of $50 per
person. If that bill were paid for the way we pay our income taxes, here is how it would work:
Those in the top half of income would pay roughly $97 each and those in the bottom half of the
income would pay an average of $3 each. Almost 40 people would pay nothing. And the single
richest person in the room would cough up $1,750."
Curtis S. Dubay of the Heritage Foundation says the Democratic presidential candidates should
be asked how they define fair share.

"Their baseline should be how much of the current tax burden the rich pay," Dubay said. "If we
define it as the top 10 percent, they pay 53 percent of all federal taxes while earning 37 percent
of income. The top 1 percent, if you want to define the rich more narrowly, paid 24 percent of all
federal taxes and earned 15 percent of all income. No matter how you measure it, top earners
pay the lion's share of the federal tax burden."
Also about the top 1 percent, Dubay said they already pay an effective rate over 30 percent, "so
the Buffett rule is already in effect."
And if Democrats want to go further, he warned: "To raise enough money to pay for things like
paid leave, they'd have to raise income tax rates and rates on capital gains and dividends.
Those hikes will reduce investment, which will slow capital formation, job creation, and wage
growth for Americans at all income levels. Soaktherich tax policies end up leaving us all wet."
Victor Fleischer, the University of San Diego law professor who first drew the nation's attention
to the compensation of hedge fund managers, says the Democrats need to rethink their fair
share argument. "Rich people who are paid with carried interest don't pay their fair share," he
told Tax Analysts. "Rich people who hide income abroad don't pay their fair share. Rich people
who get paid in founders' stock don't pay their fair share. But lots of rich people [who] pay tax at
ordinary income rates do pay their fair share."
Fleischer added: "The Democratic Party should stop trying to address inequality by raising the
tax rate on ordinary income. Eliminating the capital gains preference would be a better
approach, especially when the capital gain is really disguised labor income."
Meanwhile, when The New York Times published an article October 16 suggesting that "a
surprising amount" could be raised by increasing taxes on the top 1 percent, it brought an
immediate blog response from analyst Scott Greenberg of the Tax Foundation. In particular,
Greenberg criticized the ease with which the article said the effective tax rate of the top 1
percent could be raised from 33 percent to 45 percent and bring in "a whopping $276 billion" per
year.
To raise the effective rate on the top 1 percent by 12 percent, he said, would require raising the
top marginal rate from 39.6 percent to 74 percent.
And Greenberg told Tax Analysts, "While it's often politically popular to call for higher taxes on
the rich, Congress would have to raise marginal tax rates extremely high in order to raise
enough revenue to significantly expand government programs."
Similarly, Chris Edwards of the Cato Institute said, "Clinton and Sanders may be under the
illusion that United States is a lowtax country. But OECD data show that the federalstate
personal income tax rate in the U.S. is 46 percent, which is higher than the OECD average top
rate of 42 percent. The OECD has also found that the United States already has the most
graduated or 'progressive' tax system among their member countries. So I'd suggest Clinton
and Sanders do their homework before making wild claims about needing more taxes on high
earners."

Don't Cry for the Top 1 Percent, Others Say

But Harry Stein, fiscal analyst with the Center for American Progress Action Fund, counters,
"The reason they pay the most taxes is they have the most money." And the rich are helped by
being wellequipped to take advantage of tax preferences, he added.
Further, Stein said, U.S. tax policy most recently has tended to favor capital gains and other
types of investment income, further benefiting upperincome groups that get a lot of their wealth
from such income.
Moreover, he said, polling data show "the idea of raising taxes on the wealthy and major
corporations is really quite popular."
Overall, though, says analyst Howard Gleckman of the Tax Policy Center, the federal income
tax is "quite progressive," given that the 33 percent effective rate paid by the top 1 percent is 2.5
times the rate paid by middleincome households.
"Could the rich pay more? Sure," Gleckman says. "Would it discourage them from working or
investing on the margin? Probably. Would raising their rate by a few percentage points slow the
economy by a measurable amount? Probably not."
But there also is another question, he said. "Is it good policy to expand social programs and
have only highincome households pay? It's not so much an economics question as a political
science question."

Candidates Seek High Return From Repatriation Policies
POSTED ON NOV. 19, 2015
PDF
By

PAUL C. BARTON
To hear some presidential candidates tell it, if it were suddenly easy from a tax standpoint for
U.S. corporations to repatriate more than $2.1 trillion in overseas earnings, the money would be
in the next wire transfer home, giving the economy a jumpstart like none before.
Retired neurosurgeon and Republican White House candidate Ben Carson, for instance, calls
for a sixmonth window in which companies could repatriate those profits tax free. "You want to
talk about a stimulus, that would probably be the biggest stimulus since the New Deal and FDR,
and it wouldn't cost the taxpayers a penny," Carson said in an October 7 interview on CNBC.
(Prior coverage .)
And billionaire real estate developer Donald Trump predicted during the November 10 debate of
GOP candidates that once a more attractive repatriation policy is established, "we're going to
have all of this money pour back into the United States. It's going to be used to build businesses
for jobs and everything else." (Prior coverage .)

But just how effective some form of repatriation tax "holiday" would be remains a matter of
furious debate among academics and policy research organizations, not to mention members of
Congress. The mere mention of the idea, in fact, opens up a hornet's nest of corporate tax
reform issues, ranging from deferral, earnings stripping, and transfer pricing to the
establishment of a territorial tax system. (Related coverage .)
A glimpse of what's at stake comes from a recent Citizens for Tax Justice calculation that
Fortune500 companies would owe more than $600 billion in taxes if their overseas earnings
were repatriated under current law, which has a top marginal rate for corporations of 35 percent.
Also driving the debate is the belief among many business groups, conservative policy analysts,
and politicians that the United States overreaches and makes American companies less
competitive by attempting to tax foreign earnings. Instead of such a worldwide tax system, they
want a territorial system that would only tax profits made within U.S. borders.

Candidates' Proposals

Besides Carson, at least eight of the other 13 GOP candidates have called for offering
corporations a onetime repatriation rate of 10 percent or less, along with five to 10 years to pay
the taxes. Sens. Marco Rubio of Florida and Rand Paul of Kentucky offer rates as low as 6
percent and 6.5 percent, respectively.
But the Republican candidates disagree on whether the tax should be "deemed" meaning
corporations would have to pay it on those foreign earnings, regardless of whether they
repatriate them. Those who call for a deemed rate are Trump, Rubio, former Florida Gov. Jeb
Bush, and Ohio Gov. John Kasich.
Meanwhile, Paul's plan better matches the spirit of a true repatriation holiday by allowing
companies to not pay a tax and keep their earnings overseas, if they choose. Louisiana Gov.
Bobby Jindal had a similar proposal, but he announced November 17 that he was dropping out
of the presidential race. Texas Sen. Ted Cruz would make his repatriation voluntary as well,
according to the Tax Foundation. Former Virginia Gov. Jim Gilmore, like Carson, would allow
repatriation tax free.

Widespread Interest

But encouraging repatriation under a lowerthannormal corporate tax rate is not just a
Republican cause. President Obama and Senate Minority Leader Harry Reid, DNev., along
with Sen. Barbara Boxer, DCalif., Senate Finance Committee member Charles E. Schumer,
DN.Y., and Finance Committee ranking minority member Ron Wyden, DOre., have called for
repatriation incentives as a way to raise money for highways and infrastructure repairs. The
president, in his fiscal 2016 budget, proposed a 14 percent deemed repatriation rate.
Laura D'Andrea Tyson, who served as one of President Clinton's top economic advisers, has
also endorsed the concept of temporary tax reduction for repatriations in a paper published
jointly by the New America Foundation and the Berkeley Research Group
(https://goo.gl/4cUlyx).

Billionaire investor Carl Icahn, a Trump supporter, submitted an October 20 letter to the
headsof the House and Senate taxwriting committees, as well as Senate and House leaders,
urging immediate, favorable terms for repatriation in order to discourage corporate inversions.
Icahn also said he was forming a super PAC, initially funded with $150 million of his own
money, to lobby for such legislation. "Most of these companies would be willing to pay a 5
percent to 10 percent incremental tax on this money upon bringing it back to the United States,
where much of it would be invested in new capital and used to create new jobs," he wrote. (Prior
coverage .)

The Mid2000s Experience

Congress enacted a repatriation holiday in the American Jobs Creation Act of 2004, which gave
U.S. companies a year to repatriate earnings at a rate of 5.25 percent. Among those voting for it
was thenSen. Hillary Clinton, now the frontrunner for the 2016 Democratic presidential
nomination. She told crn.com in 2014 that she wants to find some way to bring back overseas
funds, especially those of technology companies. Her husband, former President Bill Clinton,
has repeatedly expressed support for some kind of repatriation holiday.
In response to the 2004 bill, 843 corporations brought home $362 billion out of the $804 billion
that was then available for repatriation. Of the $362 billion in repatriated earnings, $315 billion
qualified for the special rate. (Prior analysis .)
But analysts of all ideological stripes said the 2004 legislation failed in its main missions
spurring job creation and increasing domestic investment. Such critiques came from the
Congressional Research Service and the Senate Homeland Security and Governmental
Affairs Permanent Subcommittee on Investigations , as well as the National Bureau of
Economic Research, the Heritage Foundation, and the Institute for Policy Studies. (Prior
coverage .)
According to the Senate subcommittee, the repatriated funds were largely used for stock
repurchases, dividends, and executive compensation, and the 15 companies that repatriated
the most overseas profits cut nearly 21,000 domestic jobs by 2007. Overall, the holiday
produced "no appreciable increase in U.S. jobs or research investments, and led to U.S.
corporations directing more funds offshore," said the subcommittee, concluding that "repatriation
is a failed tax policy."
The CRS said, "While empirical evidence is clear that this provision [of the 2004 legislation]
resulted in a significant increase in repatriated earnings, empirical evidence is unable to show a
corresponding increase in domestic investment or employment." The CRS also said that a
permanent reduction in the tax on repatriated profits "is not likely to result in an increase in
repatriations."
Liberal groups point to the 2004 law as a warning against trying such holidays again. "It was an
absolute disaster," Chuck Marr of the Center on Budget and Policy Priorities told Tax Analysts.
They also point to a 2014 Joint Committee on Taxation projection that a replay of the 2004
legislation could cost the government $96 billion over a decade.

But Kenneth Kies, former chief Republican tax counsel for the House Ways and Means
Committee and now director of the Federal Policy Group, contends that many analyses of the
2004 legislation mischaracterized critical facts and ignored essential data. In 2011 he wrote,
"Injecting hundreds of billions of dollars currently stranded abroad into the U.S. economy
certainly would have a major effect on domestic economic growth and job creation." He added,
"Common sense suggests as much." (Prior viewpoint .)
Douglas HoltzEakin, president of the American Action Forum and former director of the
Congressional Budget Office, said in an August 2011 report prepared for the U.S. Chamber
of Commerce that a second repatriation holiday offering a 5.75 percent rate would generate
close to 2.9 million new jobs. He also said that criticisms over how the 20042005 holiday
generated funds that went to dividends, retiring debt, and stock buybacks ignores that those
transactions put money in the hands of other "economic actors" who continued a chain of
purchases and financial transfers across the economy.
A truer study of employment effects involves looking beyond the reports from corporations
themselves, he said, adding that "repatriation can be thought of as a privatesector approach to
stimulus."

Another Try at a Territorial System

Conservatives say there is a key difference between the tax holiday attempted a decade ago
and what the GOP presidential candidates propose. Most of the Republican candidates want
the onetime repatriation rate as a transition to a territorial tax system in which the United States
would no longer attempt to tax overseas profits.
"The holiday in 2004 didn't work to help the economy because it was a shortterm holiday and
didn't include a permanent move to a territorial system," Curtis Dubay, a tax policy analyst at the
Heritage Foundation, told Tax Analysts.
But groups like the Center on Budget and Policy Priorities, Citizens for Tax Justice, the Center
for American Progress, and Americans for Tax Fairness contend a temporary, low repatriation
rate will after it ends only encourage corporations to shift more profits overseas in
anticipation of getting other such deals in the future. One common technique in profit shifting is
earnings stripping, a practice in which companies engage in excessive borrowing from foreign
affiliates, leading to debt payments that strip earnings from a U.S. entity, lower its tax liability,
and become income to the affiliate overseas. Another is transfer pricing, which involves the
parent company paying high prices to a foreign affiliate for the right to intellectual properties or
other goods and services. The payments increase expense deductions in the U.S. while moving
income to the lowertaxed affiliate.
Similarly, they say a switch to a territorial system would encourage fund shifting to foreign
affiliates. In 2010 the Treasury Department estimated that a switch to a territorial system
could cost $130 billion over 10 years.
"A territorial tax system is like a repatriation tax holiday on steroids," Marr said.
Even Dubay said: "There is no doubt that a territorial system would increase the incentive for
businesses to shift income abroad. It would be especially acute if our rate remains so high. That

is why a territorial system must be paired with robust antibaseerosion and profitshifting
policies."
Because they pay taxes to foreign governments and don't want to also face the 35 percent U.S.
corporate rate, many multinationals complain about their funds being "trapped" abroad. But
liberalleaning policy groups dismiss those complaints, saying that U.S. companies get a
dollarfordollar reduction in their U.S. taxes for what they pay overseas. And while the U.S.
corporate rate frequently ranks at or near the top among OECD nations, the effective U.S.
corporate rate for the largest corporations is closer to 12 percent, not 35 percent, after factoring
in various deductions and other tax breaks.
Also, corporations have the freedom to bring their profits home, deposit them in American
banks, and invest them in other companies or a wide range of financial instruments, including
U.S. Treasury bonds, without paying any tax. They are only considered repatriated tripping
tax liability if the companies spend them on their own operations.
About 70 percent of the $2.1 trillion in unrepatriated earnings is held by just 43 corporations, a
group of 24 leading economists and international tax specialists said in a September 25 letter
to Congress. "It seems misguided, if not foolish, to be enacting such a sweeping tax giveaway,
not to mention creation of a territorial tax system, to primarily benefit a few dozen
multinationals," the letter says.
Meanwhile, the repatriation rates proposed by Republican candidates are "inappropriately low"
and a "huge gift" to multinational corporations, Alexandra Thornton, senior director of tax policy
at the Center for American Progress, told Tax Analysts. She said those companies already
receive a significant breakthrough deferral, the right to avoid U.S. taxes on foreign profits
indefinitely as long as they are not repatriated.
Deferral also happens to be a practice that Sen. Bernie Sanders, IVt., a Democratic
presidential candidate, wants to abolish. It costs taxpayers at least $90 billion a year, according
to Citizens for Tax Justice. Trump has also called for ending deferral.
Thornton said the low permanent corporate tax rates 16 percent or less and even abolishment
of the same proposed by some GOP candidates are misguided. "Acrosstheboard corporate
rate reductions that are unsupported by good math and rational economic predictions are not
going to help the U.S. become more competitive," she said. "They'll simply reduce the revenue
we have to provide the educated workforce, basic research, strong infrastructure, and other
public goods that are essential to the success of U.S. companies."

Tax Plans Show Supply Side's Still‐Formidable Grip on GOP
POSTED ON OCT. 15, 2015
PDF
By

PAUL C. BARTON
For devotees of supplyside economics, it's like having a travel agent lay out one dreamy
destination after another.
While they vary in particulars, the tax plans of those seeking the 2016 Republican presidential
nomination stand united in philosophy: Lower taxes dramatically, and dramatic economic growth
will follow.
So far seven of the 15 GOP candidates have committed such ideas to paper, promising deep
cuts in individual and corporate rates, lower or no taxes on investment income, quicker capital
cost recovery, and easy terms for repatriating overseas earnings.
Freemarket conservatives can't wait for one of the plans' authors to be sworn in.
"So clearly if the next president is Republican, [tax cutting] would be on the agenda in the first
few months of the administration, because that is also what GOP House and Senate taxwriting
committees strongly support," fiscal analyst Chris Edwards of the libertarian Cato Institute told
Tax Analysts.
Edwards looks at plans such as Louisiana Gov. Bobby Jindal's, which cuts the corporate rate to
zero and the individual rate for most Americans to 10 percent, and has only one response:
"Radical! And in a good way."
Supplyside economist Stephen Moore looks at much of what billionaire real estate developer
Donald Trump wants to do and says "bravo."
But liberal analysts have quite a different view. The website ThinkProgress.org, associated with
the Center for American Progress Action Fund, found the contrast striking: Jindal promising to
zero out taxes on corporations while demanding that even the poorest of the poor pay
something.
"All of the plans would hugely increase income inequality and would be a catastrophe for the
economy," added Robert McIntyre, director of Citizens for Tax Justice.
Because of the dramatic reductions in federal revenue that accompany the GOP plans, liberal
observers also perceive a "starvethebeast" strategy to reduce government by cutting off its
funding. It's a strategy that has never worked, they say, just as they contend supplyside has
never worked as advertised.
The seven candidates who have released formal plans are Jindal, Trump, former Florida Gov.
Jeb Bush, Florida Sen. Marco Rubio, Kentucky Sen. Rand Paul, former Pennsylvania Sen. Rick
Santorum, and former Virginia Gov. Jim Gilmore.

What They Would Do

Rates for Individual and Joint Filers
● Trump: 0, 10, 20, and 25 percent. Individuals making less than $25,000 annually and
couples making less than $50,000 would be exempt. (Prior coverage .)
● Bush: 10, 25, and 28 percent. Allows secondary earners to file separately to avoid
marriage penalty. (Prior coverage .)
● Rubio: 15 percent for individual incomes up to $75,000 and married couples up to
$150,000. Incomes above that taxed at 35 percent. (Prior coverage .)

● Paul: 14.5 percent flat tax, with the first $50,000 being exempt for a family of four. (Prior
coverage .)
● Jindal: 2 percent for individuals making $10,000 or less and married filers making
$20,000 or less; 10 percent for individual filers making $10,001 to $90,000 and married
making $20,001 to $180,000; 25 percent for individuals making more than $90,000 and
married making more than $180,000. (Prior coverage .)
● Santorum: 20 percent flat tax applicable to all streams of individual income. (Prior
coverage .)
● Gilmore: 10, 15, and 25 percent. (Prior coverage .)

Deductions and Credits
● Trump: Allows those in the 10 percent bracket to keep "all or most" deductions and those
in the 20 percent bracket to keep "more than half" of current deductions, while those in
the 25 percent bracket "will keep fewer." Charitable and mortgage interest deductions
remain. Keeps the earned income tax credit and the child tax credit.
● Bush: Increases the standard deduction by $5,000 for single filers and $10,000 for
married couples filing jointly. Deduction for state and local taxes eliminated. Itemized
deductions, including mortgage interest, capped at 2 percent of adjusted gross income.
Deduction for charitable giving still capped at 50 percent of AGI. Expands the EITC,
doubling its size for childless workers.
● Rubio: Allows only charitable deduction and a reformed mortgage interest deduction
that's scaled back for larger mortgages. Abolishes standard deductions and personal
exemptions, replacing them with a "personal credit" of $2,000 for individuals and $4,000
for joint filers. Creates $2,500 child tax credit in addition to current $1,000 credit. Keeps
the EITC.
● Paul: Allows deductions only for home mortgage interest and charitable giving and
keeps the EITC.
● Jindal: Eliminates the personal exemption, the standard deduction, and itemized
deductions. Exceptions include the deductions for charitable giving and mortgage
interest (capped at mortgages of $500,000 instead of $1 million). Also establishes a
new, nonrefundable "dependents credit" that varies by household size. Administers EITC
through payroll taxes.
● Santorum: Gives $2,750 individual credit, replacing the standard deduction and personal
exemption. It is refundable and replaces the EITC. Child credit is retained. All itemized
deductions eliminated except for charitable contributions, deductible in any amount, and
mortgage interest, capped at $25,000 a year.
● Gilmore: Continues mortgage interest and charitable deductions.

Other Issues for Individual and Joint Filers
● Trump: Eliminates marriage penalty, estate tax, and alternative minimum tax while
causing highincome filers to reach personal exemption phaseout and Pease limit on

deductions sooner. Phases out exemption on life insurance interest for highincome
filers.
● Bush: Eliminates alternative minimum tax, estate tax, and marriage penalty. Eliminates
the personal exemption phaseout and Pease limit. Ends Social Security payroll taxes for
workers older than 67.
● Rubio: Eliminates the marriage penalty, alternative minimum tax, and estate tax.
Eliminates taxes on capital gains and dividends. Reduces subsidies for
employersponsored health insurance and offers refundable tax credit for use in
shopping for health coverage. (Prior coverage .)
● Paul: Eliminates payroll taxes, as well as gift and estate taxes. Capital gains and
dividends taxed at 14.5 percent.
● Jindal: Creates taxfree savings accounts with deposit limit of $30,000 a year. Eliminates
marriage penalty, alternative minimum tax, and estate and gift taxes. Capital gains and
dividends taxed as ordinary income. Replaces exclusion for employerbased health
insurance with a standard deduction for health coverage, whether provided by employer
or purchased by individuals.
● Santorum: Eliminates marriage penalty, estate tax, and alternative minimum tax. Capital
gains and dividends fall under 20 percent tax for other individual and joint income.
● Gilmore: Eliminates the estate tax. Abolishes taxes on capital gains and dividends. All
pay at least 10 percent, with the tax taken out of a refundable family credit for the poor.

Business Taxes
● Trump: Taxes all businesses, regardless of size, at 15 percent. Repatriation of foreign
earnings under a onetime rate of 10 percent but no deferral. Puts a "reasonable cap" on
deductibility of interest expenses. Abolishes carried interest preference for hedge fund
managers and others involved in "speculative partnerships." Reduces or eliminates
"corporate loopholes that cater to special interests."
● Bush: Lowers corporate rate to 20 percent, with top passthrough rate of 28 percent.
Immediate expensing of capital investments. Allows repatriation of overseas earnings at
a onetime rate of 8.75 percent payable over 10 years as part of a switch to a
territorial tax system. Ends deferral on foreign earnings and deductibility of interest
payments. Abolishes carried interest preference.
● Rubio: Lowers corporate rate to 25 percent, which also applies to passthrough entities.
Allows for 100 percent expensing and repatriation of foreign earnings at 6 percent rate
payable over 10 years. Switches to territorial system. Eliminates deductibility of new debt
but exempts most interest income. Would not renew tax extenders. Gives tax credits to
firms offering paid leave, up to $4,000 for each worker receiving it. (Prior coverage .)
● Paul: Sets a 14.5 percent "business activity tax" on all companies, applied to revenue
minus allowable expenses, such as parts, computers, and office equipment. Immediate
expensing for all capital equipment.
● Jindal: Gets rid of corporate income taxes altogether. Immediate expensing of capital
investments for passthroughs. Removes deductibility of interest expenses. Onetime
repatriation rate of 8 percent.

● Santorum: Sets a 20 percent rate, with an initial zero rate for manufacturers, increasing
to 20 percent after two years. Allows full, immediate expensing and repatriation of
foreign earnings at 10 percent rate. Eliminates deductibility of interest.
● Gilmore: Taxes all businesses at 15 percent, with immediate expensing. Allows taxfree
repatriation of foreign earnings.

Cost Over a Decade (as estimated by the Tax Foundation)
● Trump: $10.14 trillion (dynamic) and $11.98 trillion (static).
● Bush: $1.6 trillion (dynamic) and $3.6 trillion (static).
● Rubio: $1.7 trillion (dynamic) and $4.14 trillion (static).
● Paul: $960 billion (dynamic) and $2.97 trillion (static).
● Jindal: $9 trillion (dynamic) and $11.3 trillion (static).
● Santorum: $1.1 trillion (dynamic) and $3.2 trillion (static).
● Gilmore: No estimate available.

While the plans emphasize many of the same points, there are significant differences. For
example, while several eliminate or lower taxes on capital gains and dividends, Bush leaves
them unchanged except for removing the 3.8 percent net investment income tax added on for
highend filers due to the Affordable Care Act. And Trump actually increases the capital gains
and dividends rate from 15 percent to 20 percent for single filers making more than $150,000
and couples making more than $300,000. Another difference involves passthroughs. Five of the
seven plans equalize tax treatment of passthroughs and C corps, but Jindal's and Bush's do not,
making the former still pay at individual rates, albeit lower ones.

What Businesses Want

For the most part, said Douglas HoltzEakin, president of the American Action Forum, the GOP
plans "are right in the mainstream of what's been conservative tax policy for several years."
He added in an interview, "Our No. 1 problem is a waytooslow trend in growth."
The primacy of helping corporations and passthrough entities shows through in all seven
proposals. Rubio's, for instance, devotes 11 pages to tax issues involving business levies before
devoting six pages to individual and family taxes. And it promises "the United States will once
again be a prime destination for business."
While some probusiness Washington organizations hesitate to comment on the proposals of
specific candidates, they will say what kind of tax reform they want and it sounds a lot like
what these plans offer.
Curtis Dubay of the Heritage Foundation says the best way to boost the economy "is to lower
marginal tax rates for families, businesses, investors, and entrepreneurs, reduce the double
taxation of saving and investment, and to stop the tax code from picking winners and losers in
the marketplace."
U.S. Chamber of Commerce spokeswoman Megan Van Etten told Tax Analysts the
organization has "long supported comprehensive tax reform that lowers tax rates to a level that

enables U.S. businesses to compete successfully in the global economy, attracts foreign
investment, increases capital for investment, and drives job creation in the U.S."
The National Association of Manufacturers lists capital cost recovery and the double taxation of
capital gains and dividends as among its foremost tax reform concerns.
And Doug Sachtleben, spokesman for the Club for Growth, says his organization lobbies for
lower rates, "and there are elements of those in all the Republican plans, and the club hopes the
Republican presidential candidates will continue to make that case."

'Donald Dust'

Watchdog groups on the national debt and deficits, however, contend the plans largely offer
"goodies" but don't confront hard choices about cutting government spending to offset their
revenue losses. The nearly $19 trillion national debt is so high, they add, the country can't afford
any more gambles on tax plans that aren't paid for. Paul, though, claims a budgetbalancing
plan that includes abolishing four cabinetlevel departments, and Trump told New Hampshire
voters on October 12 he would slash "hundreds of billions of dollars" by going after cabinet
departments. Santorum pledges to pay for his plan by repealing the Affordable Care Act.
Several candidates also promise to support a balanced budget amendment to the Constitution.
Budget groups, however, call that "pie in the sky" talk.
Some, however, credit Santorum with being a little more specific. In addition to calling for ACA
repeal, he proposes a 10 percent reduction in the nondefense federal workforce, vetoing
appropriations bills that don't take spending restraint "seriously," paring programs in various
cabinet departments, transferring numerous others to the states, and close to a dozen other
steps to limit federal spending. (Prior coverage .)
HoltzEakin agreed that the deficit consequences are an unavoidable issue. "You have to be
real and honest about it," he said.
Steven Rosenthal, analyst at the UrbanBrookings Tax Policy Center, took one look at Jindal's
plan and dismissed it, saying, "Just another package of large tax cuts, the easy part of tax
reform."
Trump, though, claims significant offsets to his lower rates through eliminating many deductions
and other preferences available to highincome taxpayers, ending many corporate deductions,
ending the deferral on corporate income earned abroad, and encouraging the repatriation of
corporate profits. In fact, Trump claims revenue neutrality for his plan, although independent
scoring belies it.
Rubio says the kind of economic growth that only tax reform can engender is key to controlling
the debt and deficits, along with "holding the line on spending," although he doesn't offer
specifics on the latter. And despite scoring to the contrary, he has even claimed his plan would
create a surplus after several years.
Add Dennis J. Ventry Jr., law professor at the University of California, Davis, to the skeptics.
"The obvious shared theme among the proposals is sharp tax cuts that will magically boost the
economy to unseen heights," Ventry said, adding that "equally magical" is the bipartisanship
that candidates assume will arise to close loopholes and help pay for what threaten to be
"guaranteed and gargantuan revenue losses."

Trump in particular, Ventry said, attempts to sprinkle "Donald Dust" in voters' eyes so that they
believe his plan "will not add trillions of dollars to the deficit, raise interest payments on our
national debt, or slow the economy but rather [would] double the rate of economic growth from
the present rate of 3 percent to 6 percent."
Speaking of revenue losses, even some of the worstcase or static estimates from the Tax
Foundation undershoot, other groups say. For instance, Citizens for Tax Justice puts the losses
from Paul's plan at $15 trillion over a decade, far more than the foundation's dynamic scoring
estimate of $960 billion, its static estimate of $2.97 trillion, or Paul's own estimate of $2 trillion.
Harry Stein of the Center for American Progress Action Fund says history shows supplyside
economics doesn't work as promised, with the most recent evidence being the years following
the 2001 and 2003 tax cuts under former President George W. Bush. Any growth that followed,
he said, was modest at best before the decade closed with the Great Recession.
"They are clinging to this increasingly discredited trickledown mantra," Stein said, adding that
middleincome taxpayers have benefited little from supplyside policies when they've been tried.
"The bulk of the economic growth has flowed to the top," he added.
And if these candidates intend to reduce government by starving it of funds, that policy won't fly,
some liberals say. They point to, among other support, a 2009 Brookings Institution paper
(http://goo.gl/CnTRgH) written by two University of California researchers who studied
government spending patterns following tax cuts and found that "the lack of support for a
starvethebeast effect is highly robust." The researchers examined all tax changes approved by
Congress from 1945 to 2007.
But candidates like Jindal aren't buying it. In an October 8 blog for Forbes.com he wrote: "We
cannot grow both the government economy and the real economy at the same time. My tax plan
chooses to starve Washington and feed the heartland."

Candidates Short on How to Pay for Tax Cuts
POSTED ON AUG. 31, 2015
PDF
By

PAUL C. BARTON
All dessert without the vegetables is how groups worried about federal deficits and the national
debt characterize the tax policy proposals emanating from many of the 2016 presidential
candidates.
With yearly deficits still as high as $426 billion and the national debt within a rounding error of
$19 trillion, the country can't afford any more unpaidfor tax cuts, they say.

"It's not like there is money to give away," Robert L. Bixby, executive director of the Concord
Coalition, told Tax Analysts. "It's not like it was at the beginning of the [former President] George
W. Bush era, when we had a surplus."
The $426 billion figure is what the Congressional Budget Office projects for the fiscal 2015
deficit, with the deficit falling to $414 billion in fiscal 2016 but then growing steadily until
trilliondollar deficits return by 2025.

Leaving No Stone Unturned in Tax Cut Search

Despite those projections, most, if not all, of the 17 declared Republican candidates promise
major tax cuts for individuals and corporations, although only a few have laid out specifics. They
declare that cutting taxes, especially on investment, is a surefire path to more vigorous GDP
growth and higher wages, boosting government revenues in the long run.
Some talk of tearing up the tax code and implementing flat taxes; some advocate the "FairTax,"
or a "Fair and Flat Tax." Others speak of lowering top marginal rates to at least 25 percent or 20
percent, with some promising 14.5 percent or even as low as 10 percent. Along with those
reductions, several call for far more generous treatment of investment income as well as of
corporate income and expenses. Elimination of estate taxes is also popular.
But the candidates' belief in the Laffer curve and dynamic scoring to keep their plans from
blowing bigger holes in government finances does not assuage groups like the Concord
Coalition and the Committee for a Responsible Federal Budget. That's even if they promise to
support a balanced budget amendment to the Constitution, which many do.
"What we hope is they don't promise a lot of goodies without a way to pay for them," Marc
Goldwein, senior vice president of the Committee for a Responsible Federal Budget, said in an
interview. He added that "the jury is still out on whether dynamic scoring is a good idea or not."
Bixby is more blunt: "No credible economic analysis I've ever seen says that large tax cuts pay
for themselves." It's a point that Keith Hall, director of the CBO, seconded on August 25. "The
evidence is that tax cuts do not pay for themselves," Hall said during a briefing.
Bixby says candidates promising tax cuts should first lay on the table the spending cuts needed
to pay for them. He calls it putting hard choices "ahead of the fudge sauce." Some GOP
candidates are calling for tax cuts so generous, he said, "you would have to gut the rest of
government," including the Defense Department.

Democrats Also Missing Details

Meanwhile, Democratic presidential candidates have their own tax proposals that lack details.
At a recent Nevada AFLCIO convention, Sen. Bernie Sanders, IVt., and former Maryland Gov.
Martin O'Malley pledged to eliminate the "Cadillac tax" on highend healthcare plans but said
nothing about making up the revenue. The tax will go into effect in 2018 and is supposed to
bring in $87 billion by 2025, money that will be used to pay for parts of the Affordable Care Act.
(Prior coverage .)
While Sanders is also talking about lots of new taxes, Goldwein said, "it isn't clear he wants to
put any of it toward deficit reduction other than some to improve Social Security."

Meanwhile, Hillary Clinton has proposed tax credits as incentives for employers to create
profitsharing plans, saying the credits would be paid for by closing "tax loopholes" that she has
yet to identify. Clinton has also proposed $350 billion in new aid for college students, saying it
would be paid for by eliminating tax preferences for the wealthy, which she also has yet to
specify. (Prior coverage .)

Numbers That Don't Jibe

But it's the Republican proposals that portend the biggest fiscal consequences. "Most of them
[tax plans] lose significant revenue," said Howard Gleckman of the UrbanBrookings Tax Policy
Center, adding that often "the numbers are difficult to square."
One such case, some say, involves the FairTax a national sales tax to replace the income tax
which former Arkansas Gov. Mike Huckabee proposes. During the August 6 GOP debate in
Cleveland, Huckabee asserted that a 23 percent FairTax would do a better job of securing
longterm revenue to pay Social Security benefits because it would bring in money from
"illegals, prostitutes, pimps, drug dealers [and] all the people that are freeloading off the
system." (Prior coverage , .)
"He's proposing a tax that is supposed to be revenue neutral and yet claiming it generates
revenue to cover Social Security's shortfall. How can it be both?" Goldwein asked. The
Committee for a Responsible Federal Budget official also dismissed Huckabee's claim that the
FairTax would spur 6 percent annual economic growth. "We are hearing promises that we know
just won't add up," he said.

Rubio and Paul More Specific

Republican candidates who have offered details about their tax plans are Sens. Marco Rubio of
Florida and Rand Paul of Kentucky.
Rubio proposes consolidating the seven individual brackets into two, with the top rate at 35
percent and the bottom at 15 percent, and the latter applying to individual incomes up to
$75,000 and family incomes up to $150,000. He also proposes eliminating capital gains and
dividend taxes, cutting corporate and passthrough rates to 25 percent, allowing 100 percent
expensing of capital investments, and providing a $2,500 child tax credit on top of the current
$1,000 child tax credit.
"In terms of seriousness of detail, the plan I'm most impressed with is Rubio's," Goldwein said.
Rubio developed the plan with Sen. Mike Lee, RUtah. An earlier version was projected to cost
$2.4 trillion over 10 years. Gleckman said the updated version would "surely be even more
expensive."
The Tax Foundation said Rubio's plan would add at least 1.44 percent annually to economic
growth that would occur naturally. It also said it would eventually increase federal revenue by
$94 billion "following an estimated $1.7 trillion revenue loss over the initial ten year period."
Static scoring, it said, showed a loss of $414 billion annually.

Rubio addressed his tax plan in the context of debt and deficit issues at an April 2015 Heritage
Foundation program. "If this was a taxincrease plan, you would still have a problem with the
debt, because you can't realistically raise rates to any level to deal with the debt," he said.
Added revenue, Rubio said, comes "by creating more taxpayers, not more taxes."
The key to debt reduction, Rubio said, is bringing about more rapid economic growth while
"holding the line on spending." However, he offered no details about what he meant by the
latter.
Rubio also said there must be "a whole separate conversation" about entitlement programs,
which he called "the longterm drivers of our longterm debt." Taxpayers of his generation, he
said, "are going to have to accept that our Medicare and Social Security are going to look
different than our parents'."
But when Rubio outlined his tax plan before the Detroit Economic Club on August 20, he
mentioned only its purported economic growth effects and said nothing about spending
restraints or overhauling entitlement programs.
Meanwhile, Paul's plan, the Fair and Flat Tax, would apply a flat 14.5 percent rate to all
personal income, including wages, salaries, dividends, capital gains, rents, and interest, with no
tax at all on the first $50,000 of family income. For businesses, there would be a 14.5 percent
"activity tax" on revenue minus certain expenses, along with immediate expensing for capital
investments.
Paul himself calls it a $2 trillion tax cut over 10 years "the largest tax cut in our history." He
also says that over a decade it would add at least 10 percent to economic growth that would
occur under current tax law.
But Citizens for Tax Justice put its cost at $1.2 trillion annually and close to $15 trillion over a
decade
(http://www.taxjusticeblog.org/archive/2015/06/rand_pauls_tax_plan_would_blow.php#.Vd40d_l
VhHw).
And Gleckman wrote of it: "Paul is probably underestimating the cost of his plan. He claims he'd
cut taxes (and thus increase the debt) by $2 trillion over 10 years. But he's using a very
aggressive analysis that assumes powerful growth effects from the tax reductions." Gleckman
noted that the Tax Foundation, even assuming dynamic scoring, projected it would add $1
trillion to the debt over a decade, with a static analysis raising that to $3 trillion.
Paul, however, asserts he is more than ready to address the spending side of the equation. He
points to a proposal for balancing the budget in five years that he has introduced repeatedly
after coming to the Senate in 2011. Among other steps, it calls for abolishing four Cabinetlevel
agencies Housing and Urban Development, Commerce, Education, and Energy
(http://www.scribd.com/doc/55912438/SenatorRandPaul5YearBalancedBudget#page=14).
But Bixby said he still doesn't see enough realism in the claims of either Rubio or Paul. "I don't
see how starting with a large tax cut gets you there," the Concord Coalition official said. "The tax
cut has to be paid for." He added that even many of Paul's proposed spending cuts, especially
the elimination of four Cabinet departments, "is pieinthesky stuff."
In the coming weeks, more GOP candidates, including business magnate Donald Trump, are
expected to fill in their ideas on taxes. When voters listen, Gleckman said, "it's a useful exercise
to try to do the math."

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