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Understanding the Tax Plans of Donald Trump and Ted Cruz

2016-04-26 · explainer · John, Hank · 7:59 · watch on YouTube

Topic: US politics & society (also: Economics) · mode: News analysis · tags: timely hook

John explains the current US income tax system and the tax plans of Ted Cruz (flat 10% rate, a business VAT) and Donald Trump (four brackets, lower corporate rates), and argues that both cut taxes most for the rich, would sharply raise deficits, and are infeasible without reimagining government's role.

What is said

The parts of the video and what is said in each (★ — how much it matters to the video).

00:00:00 — Greeting; thanks for Hank's Clinton/Sanders video; today Trump and Cruz, not Kasich

  • ★★ John says that today he will discuss the tax plans put forth by Donald Trump and Ted Cruz. — 00:00:04 · Donald Trump
  • ★ John says he would discuss John Kasich's tax plan, but Kasich has not yet put out a detailed one. — 00:00:08

00:00:13 — Overview of the federal budget; John's disclaimer about his Academic Decathlon economics bronze

  • ★★ John says about a third of the $3.8 trillion US federal budget goes to Social Security and unemployment, mostly Social Security, and 27% to health care, mostly Medicare. — 00:00:16
  • ★★ John says 16% of the federal budget goes to the military, 6% to servicing the national debt and 4% to veterans' benefits; other items are small. — 00:00:31
  • ★ John stresses he is neither a tax policy expert nor an economist, though in 1994 he won the economics bronze at the Alabama State Academic Decathlon; he has read many experts. (playful) — 00:00:43 · first in: 2014-02-04, Should We Raise the Minimum Wage?

00:01:02 — How current income tax works: brackets, deductions, the standard deduction and effective rates at three incomes

  • ★★ John says that for a married couple filing jointly, income over about $465,000 is taxed at the top US marginal rate of 39.6%. — 00:01:31
  • ★★ John says deductions (mortgage interest, charity, some student loan interest and more) lower taxes, and everyone can claim the standard deduction, currently $12,600 a year for married couples filing jointly. — 00:02:00
  • ★★ John says a married couple earning $1 million and taking only the standard deduction would pay about $343,427 in tax, an effective rate of about 34.3%. — 00:02:13
  • ★★ John says the same family earning $250,000 a year would pay $53,755, an effective tax rate of 21.5%. — 00:02:21
  • ★★ John says a family with the median US household income of about $52,000 pays just under $5,000 in federal income tax, an effective rate of about 9.6%. — 00:02:27

00:02:36 — Ted Cruz's plan: flat 10% rate, bigger standard deduction, a 16% business VAT, revenue loss and deficits

  • ★★★ John says Ted Cruz would collapse the seven brackets into a single 10% rate on all income, a flat tax, and raise the standard deduction to $20,000 for married couples. — 00:02:36
  • ★★ John says under Cruz's plan a median-income household would pay $3,200 a year instead of $5,000, a cut of $1,800 or 34%. — 00:02:52
  • ★★ John says a family making $1 million a year would pay $98,000 under Cruz's plan, a cut of $245,000 a year or 72%. — 00:02:59
  • ★★★ John concludes that under Cruz's plan everyone would pay less tax, but the wealthiest Americans would get by far the biggest cuts in both percentage and dollars. — 00:03:06 · economic inequality
  • ★★ John says Cruz would eliminate most deductions except mortgage interest and charitable giving, and abolish all federal gift and estate taxes. — 00:03:13
  • ★★ John says Cruz would repeal all corporate and payroll taxes in favour of a 16% kind of value-added tax. — 00:03:23
  • ★★ John explains that unlike Europe's consumption VAT, Cruz's VAT taxes business revenue minus capital investment and payments to other companies. (hedged) — 00:03:38
  • ★★ Using a pizza t-shirt sold at DFTBA.com as an example, John explains the VAT taxes what is left over, profits and wages, so it is a tax on both wages and corporate profits. (hedged) — 00:04:16 · DFTBA Records
  • ★★ John says such a VAT aims to tax economic activity better than the current system, which would be good given the current tax avoidance. — 00:04:21
  • ★★ John says many economists, though certainly not all, like this kind of VAT. — 00:04:31
  • ★★★ John says the nonpartisan Tax Policy Center calculates Cruz's plan would reduce federal revenue by $8.6 trillion over ten years. — 00:04:34
  • ★★ John says Cruz claims eliminating the IRS and other agencies would save $500 billion over a decade, which is less than 10% of the shortfall. — 00:04:44
  • ★★ John says that even ending all US military spending would leave the Cruz plan $2 trillion short, and Cruz wants to increase military spending dramatically. — 00:04:54
  • ★★★ John says some economists expect growth to cover part of the shortfall, but even the most optimistic independent modelling he found shows a dramatic deficit increase under Cruz's plan, barring huge Medicare or Social Security cuts. — 00:05:04

00:05:20 — Donald Trump's plan: four brackets, lower corporate rates, carried interest, revenue loss of 10-12 trillion

  • ★★★ John says Trump would raise the standard deduction so couples earning $50,000 or less pay no federal income tax, and collapse the brackets into four, with a top rate of 25% over $432,000. — 00:05:20 · Donald Trump
  • ★★ John says Trump's plan, like Cruz's, would eliminate gift and estate taxes and most deductions, but would cut corporate tax rates rather than replace them with a VAT. — 00:05:36 · Donald Trump
  • ★ John says lower corporate rates would probably lead many people to identify as corporations instead of human beings, for complicated reasons explained on screen. (playful, hedged) — 00:05:41
  • ★★ John says Trump's plan would end carried interest, which lets hedge fund managers pay a lower rate, but with such low income tax rates almost all of them would still pay less tax. — 00:05:49 · Donald Trump
  • ★★★ John says Trump's repeated claim that his plan will 'cost me a fortune' is just not true: a $1 million earner would pay about $200,000, more than under Cruz but far less than now. — 00:06:08 · Donald Trump
  • ★★★ John says Trump's plan would cost more federal revenue than Cruz's, 10 to 12 trillion dollars over the next decade, about 25% of the total federal budget. — 00:06:23 · Donald Trump
  • ★★ John says Trump claims his plan is revenue neutral, but the right-leaning Center for Federal Tax Policy published an op-ed saying it will not be revenue neutral under any circumstances. — 00:06:35 · Donald Trump
  • ★★ John says the Tax Policy Center estimates that eliminating the US military altogether would cover only about half of the revenue gap from Trump's plan. — 00:06:45 · Donald Trump

00:06:55 — Summary: both plans favour the rich and raise deficits; neither is feasible without reimagining government

  • ★★★ John sums up: Cruz's flat tax lowers everyone's taxes but helps the wealthy most; his corporate approach has support among economists, but the low rates mean dramatically higher deficits. — 00:06:55
  • ★★★ John says Trump's plan would probably lead to even bigger deficits than Cruz's. (hedged) — 00:07:13 · Donald Trump
  • ★★ John says that, as with Cruz's plan, everyone would pay lower taxes under Trump's but the rich get most of the benefit, though less than under Cruz. — 00:07:16 · Donald Trump
  • ★★★ John argues neither plan is at all feasible unless Americans completely reimagine the role of government, especially for the elderly, the disabled and military veterans. — 00:07:24
  • ★★★ John says, speaking frankly, that neither candidate has offered a serious explanation of how they would preserve those programs. — 00:07:35 · Donald Trump
  • ★★ John says cuts to services for the elderly, disabled and veterans are so politically unpopular that both candidates have promised to preserve those programs. — 00:07:35 · Donald Trump
  • ★★★ John concludes you cannot cut government receipts by 20% while preserving programs that together make up more than 80% of the budget. — 00:07:49

In the description and comments

  • ★ John lists his sources: analyses of both Cruz's and Trump's plans from the nonpartisan Tax Policy Center and the right-leaning Center for Federal Tax Policy (Tax Foundation), a primer on Cruz's VAT or "business flat tax", the National Priorities Project on the federal budget, and Wikipedia on US federal income tax. — video description · Donald Trump, Wikipedia

Threads in this video

Where the stories that moved here went next

Mentioned

Central: Donald Trump · Donald Trump tax plan · government budget balance · Ted Cruz · Ted Cruz tax plan · value-added tax

Also: People: Bernie Sanders · Hillary Clinton · John Kasich

Projects: DFTBA Records

Organizations: Internal Revenue Service · Tax Foundation · Tax Policy Center · United States Armed Forces

Concepts: carried interest · corporate tax · economic growth · economic inequality · effective tax rate · flat tax · government debt · payroll tax · tax bracket · tax deduction

Places: Alabama

Events: United States Academic Decathlon

Policies: Medicare · Social Security · Unemployment benefits

Only in the description or credits: National Priorities Project · Wikipedia

Also centred on Donald Trump tax plan: Understanding Donald Trump and Hillary Clinton's Tax Plans

Also centred on government budget balance: Hey! You! Fix the Budget! · Understanding the National Debt and Budget Deficit · Understanding the Financial Crisis in Greece · Understanding Donald Trump and Hillary Clinton's Health Care Reform Proposals

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