TaxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. policy was a central focus of last night’s Republican debates, as candidates called for tax reform and defended the tax plans they’ve proposed over the past few months. However, one of the most surprising moments of the debate came from a candidate who has not yet released a comprehensive tax plan: Dr. Ben Carson.
About halfway through the debate, when asked how he would change the federal tax code, Dr. Carson offered one of the boldest tax proposals seen in this campaign. Specifically, Carson called for eliminating all itemized deductionItemized deductions allow individuals to subtract designated expenses from their taxable income and can be claimed in lieu of the standard deduction. Itemized deductions include those for state and local taxes, charitable contributions, and mortgage interest. An estimated 13.7 percent of filers itemized in 2019, most being high-income taxpayers. s from the tax code, including the mortgage interest deductionThe mortgage interest deduction is an itemized deduction for interest paid on home mortgages. It reduces households’ taxable incomes and, consequently, their total taxes paid. The Tax Cuts and Jobs Act reduced the amount of principal and limited the types of loans that qualify for the deduction. and the charitable deduction:
But you also have to get rid of all the deductions and all the loopholes because that is the thing that tilts [the tax code] in one direction or another…
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, home mortgage deduction. 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.
And they say there will be no more charitable giving. We had churches before that and charitable organizations before that. The fact of the matter is, I believe if you put more money in people’s pockets that they will actually be more generous rather than less generous.
Eliminating deductions from the tax code is standard fare for the 2016 Republican field, and for good reason. Deductions are a major source of tax complexity and are often little more than federal social policy embedded in the tax code. Furthermore, because many Republicans want to lower individual and corporate tax rates, eliminating deductions is an easy way to fund these rate cuts without increasing the federal deficit.
However, no Republican candidate this year, other than Carson, has called for eliminating all deductions from the individual tax code (Mike Huckabee’s plan would eliminate all deductions, but he would also entirely eliminate the current code). On the other hand, seven Republican candidates have proposed eliminating all itemized deductions except for two – the mortgage interest deduction and the charitable deduction – which are especially popular with voters.
Proponents of the mortgage interest deduction argue that it represents the correct tax treatment of interest income. Detractors claim that it distorts investment towards owner-occupied housing and largely benefits high-income taxpayers. In 2016, the mortgage interest deduction will reduce federal revenues by $75 billion.
Supporters of the charitable deduction claim that it is proper for federal policy to encourage public goods provided by the charitable sector, or that individuals should not be taxed on money they give away and do not consume. Opponents claim that there is no way for the federal government to tell whether charitable contributions are furthering public aims, or that charitable contributions should just be seen as another form of consumption. As the charitable sector has grown, so has the amount of federal revenue lost through the charitable deduction, $58 billion in 2015.
Carson’s rationale for eliminating the charitable and mortgage interest deductions is simple: last night, he argued that the federal government should not subsidize any specific economic activity through the tax code. Rather than giving individuals deductions for particular purposes, Carson expressed a preference for lower tax rates overall, allowing individuals to choose whether to spend their increased disposable income on housing, charitable giving, or any other purpose.Share