(Bloomberg) — In pitching his tax-cut plan, Republican presidential candidate Jeb Bush lamented the persistence of breaks that “apply to some but not to all.”
Still, his proposal to reduce taxes by at least $3.4 trillion over a decade leaves many credits, exclusions and exemptions untouched. Those include breaks for health care, retirement, life insurance, municipal bonds, home sales and child care.
The former Florida governor calls for eliminating the deduction for state and local taxes and sharply limiting the mortgage interest deduction. Unlike some previous Republican efforts to revamp the U.S. tax code, Bush doesn’t even attempt to raise enough money from limiting tax breaks to offset the cost of his rate cuts, and that means that plenty of tax breaks aren’t on his chopping block.
“This seems to actually have a purpose,” said Douglas Holtz-Eakin, who was John McCain’s economic adviser during the 2008 presidential campaign. “What this says is: ‘I’m not going to run a tax code on revenue-neutral constraints and distributional tables. I want to do something.’”
Many of the U.S. tax code’s benefits aren’t mere subtractions from income, known as deductions. Instead, they are embedded in the definition of what counts as income in the first place. Alternately, they’re credits, doled out to taxpayers as subtractions from the final tax bill.
Bush’s plan, released on Wednesday, lowers corporate and individual tax rates, repeals the estate tax and alternative minimum tax and lets businesses write off expenses immediately. He wants to close the fiscal gap that his tax plan creates with spending cuts that he hasn’t specified yet and regulatory changes that he says would spur economic growth.
The Tax Foundation and economists associated with the campaign both estimated that the plan would cut federal revenue by more than $3 trillion, or more than 7 percent, over the next decade.
Bush’s nod to simplicity and base broadening for individuals is a bigger standard deduction, fewer brackets and a cap on itemized deductions.
The cap would limit the tax benefit of itemized deductions to 2 percent of an individual’s gross income and it wouldn’t apply to charitable contributions. Because Bush’s plan would repeal the state and local tax deduction, the main effect would be to end the mortgage interest deduction for many people.