A month ago, as Newt Gingrich began to rise in the polls, I did an informal assessment of his tax-cut plan, concluding that “every change that Gingrich proposes would overwhelmingly benefit those Americans who are already at the very top of the economic scale” and that it would produce significantly less revenue, forcing major reductions in Social Security, Medicare and other programs that are crucial to the middle class.
(In brief, the Gingrich plan would eliminate the capital gains tax, cut the corporate income tax to 12.5 percent, eliminate the estate tax and offer an optional flat-rate tax of 15 percent for those taxpayers who would benefit from it.)
The Tax Policy Center has now released a more detailed, in-depth assessment of those proposed changes. According to the TPC, 82.9 percent of the Gingrich tax cuts would indeed go to those making $119,546 or more. The top 1 percent — those making $622,809 or more — would collect 50 percent of the tax cut, enjoying an average tax reduction of more than $340,000.
Meanwhile, the 60 percent of American households making less than $69,074 would split 7.1 percent of the tax savings. (These numbers assume extension of the Bush tax cut, as per the Gingrich plan.) If those tax cuts are not extended, the savings at the top would be even more dramatic.)
Looked at another way, the average effective tax rate for the richest 0.1 percent (those with incomes above $2.9 million) would fall to 10.2 percent from the current 33.5 percent, a reduction of more than two-thirds. (See chart below) In fact, under President Gingrich, the richest 0.1 percent would pay lower effective tax rates than almost 60 percent of their fellow Americans. To Newt, the so-called “Buffett secretary problem” isn’t a problem at all, it is a goal.
Not surprisingly, cuts of that size would put a huge new hole in the budget. If the Bush tax cuts are extended, the Gingrich tax cuts would produce an additional deficit of $800 billion by 2015; if the cuts are not extended, the revenue loss would be $1.2 trillion.
Given that Gingrich is a strong advocate of a balanced budget amendment, that would require cutting the projected 2015 federal budget by 43 percent.
– Jay Bookman