Republican presidential candidate Rudy Giuliani unveiled his 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. plan on Saturday, highlighted by calls to end the “marriage penaltyA marriage penalty is when a household’s overall tax bill increases due to a couple marrying and filing taxes jointly. A marriage penalty typically occurs when two individuals with similar incomes marry; this is true for both high- and low-income couples. ” and the estate taxAn estate tax is imposed on the net value of an individual’s taxable estate, after any exclusions or credits, at the time of death. The tax is paid by the estate itself before assets are distributed to heirs. , as well as to make permanent the Bush tax cuts, including the lower marginal tax rates and the extension of the child tax creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. . From Newsday:
Rudy Giuliani warned Saturday that his Democratic rivals would hit American families with up to $3 trillion in tax hikes and promised to slash taxes as president, but he offered few specifics on how he’d find the money to pay for his plan.
Giuliani said if any of the top Democrats is elected president, a family of four earning $50,000 a year would pay more than $2,000 in additional taxes — because most of the Democrats have proposed rolling back or eliminating President George W. Bush’s tax cuts.
“I think the promise to raise taxes is a promise they will keep,” Giuliani said. He pledged to make Bush’s tax cuts permanent and focused on other targets of conservative ire in the tax code: killing the inheritance taxAn inheritance tax is levied upon an individual’s estate at death or upon the assets transferred from the decedent’s estate to their heirs. Unlike estate taxes, inheritance tax exemptions apply to the size of the gift rather than the size of the estate. and “marriage penalty” that causes couples to pay more. He’d also cut corporate tax rates, which few expect Bush to accomplish before leaving office.
The Washington Post added these details:
He said people would face $3 trillion in tax increases over the next decade unless Bush’s tax cuts are made permanent. Giuliani also advocated a permanent child tax credit and lower marginal tax rates. He favors linking the alternative minimum tax to the rate of inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power. .
With regard to the child tax credit, it is essentially a vote-buying exercise whereby the government pays families to have children. It is typically supported by politicians in both parties, but the obvious question is, Where do you stop? It started with a $500 per child credit. Now it is $1,000. Should it be $2,000? How about $10,000 per child? Maybe families with children shouldn’t have to pay taxes at all. How far will politicians go in order to be able to call themselves “pro-family?”
The same goes for the marriage penalty. While most would consider the ideal treatment of marriage in the tax law to be “marriage neutral,” it is not that easy. Many families receive a marriage bonusA marriage bonus is when a household’s overall tax bill decreases due to a couple marrying and filing taxes jointly. Marriage bonuses typically occur when two individuals with disparate incomes marry. Marriage penalties are also possible. as a result of being married. This usually holds when the two income earners have significantly different incomes: the progressive rate structure, which is marriage-neutral at low-to-middle income ranges, can move marginal income that was taxed at, say, 25 percent for the high-income earner back to just 15 percent because the thresholds for married couples are double those for singles. When there is no second earner, e.g. with a stay-at-home mom, the marriage bonus is most significant.
However, there are significant marriage penalties in the tax code, and some married couples could pay a lower tax rate if they were able to file as two singles. A marriage penalty exists among high-income bracket thresholds and within certain phase-out ranges of various credits and deductions, and if the Bush tax cuts were to expire, the marriage penalty on the standard deductionThe standard deduction reduces a taxpayer’s taxable income by a set amount determined by the government. It was nearly doubled for all classes of filers by the 2017 Tax Cuts and Jobs Act (TCJA) as an incentive for taxpayers not to itemize deductions when filing their federal income taxes. would return. A marriage penalty also exists inside the alternative minimum tax (AMT), which is one of the main reasons AMT hits married couples most heavily. However, it is possible that those who face AMT because they are married are actually benefiting from being married (i.e. marriage bonus) when it comes to their final tax bills. It can be a complicated issue, even for accountants to figure out.
In the coming years, even outside of the tax law changes, the marriage penalty is likely to continue to grow relative to the marriage bonus due to the fact that the pay gap between married men and women will likely continue to shrink, especially as couples meet at work, college, and other places where people of similar professional status, who are likely to have similar income earning capabilities, gather.
Overall, calling for lower marginal rates is the best policy prescription in Giuliani’s plan. Unfortunately, there is no discussion of financing even lower marginal rates by broadening the tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. and eliminating many of the deductions and exemptions that permeate the tax code on both the individual and corporate side. Furthermore, all candidates must be committed to stating what spending should be cut in order to finance reductions in tax liabilities. Tax cuts are always popular if you don’t cut spending.
Giuliani’s campaign has done that to some extent thus far and his record of controlling spending as mayor of New York is decent, but at the federal level, the issues are much different and much more difficult. (While the public employee unions in the Big Apple may be tough to take on, they are in a different league when it comes to the lobbying pressures of the AARP, the real estate sector, the health care sector, and others.) Big spending items such as those concerning the growing entitlement crisis (Social Security and Medicare), as well as education, other healthcare, and military spending, are what need to be addressed. On the tax side, the candidates should start by also addressing the entitlements that exists in the tax code and focus on fundamental tax reform rather than minor tax changes and expansions in existing tax preferences.Share