By Deanna C. White
Unlike many of his fellow Republican presidential candidates, whose tax reform plans would dispose of the entire, current United States tax system, Jon Huntsman, former Governor of Utah, advocates a tax reform proposal, that while sweeping in its scope, still adheres to the basic structure of the existing U.S. tax code.
Despite some of the more dramatic aspects of his tax reform proposal – eliminating all tax deductions, including those for home mortgages and charities, and lowering tax rates to three levels, 8 percent, 14 percent and 23 percent – analysts say Huntsman's plain is still relatively mainstream.
"He is staying within traditional income tax concepts, but saying what we need to do is lower tax rates and have fewer deductions and credits", said Clinton Stretch, managing tax principal of Deloitte LLP, and a member of the Tax Legislation and Policy Committee of the AICPA. "Although there is a broad consensus in this country for that view, the problem with is that the details are untested."
The polls would seem to indicate many Americans concur.
At the end of September, several polls, including a CNN/Opinion Research and USA Today/Gallup poll, placed Huntsman squarely in last place among his Republican running mates, with only 1 percent of the popular vote in comparison to frontrunners Texas Governor Rick Perry and former Massachusetts Governor Mitt Romney.
If Huntsman were to pull from the back of the pack however, his extensive tax reform plan would have significant effect on individual taxpayers, small business owners, corporations, and the accounting professionals who administer their finances.
According to documents posted on Huntsman's campaign blog, Huntsman's "Time to Compete; An American Jobs Plan" outlines six basic tenets aimed to reform the U.S. tax code and stimulate jobs and the economy.
Huntsman's tax reform proposal would:
Simplify the personal income tax code and lower rates. Huntsman would introduce a revenue-neutral tax plan that eliminates all deductions and credits in favor of three drastically lower rates of 8 percent, 14 percent and 23 percent. Huntsman posits eliminating deductions and credits in favor of lower marginal rates will yield a simpler and more efficient tax code, decreasing the burden on taxpayers.
- Eliminate the Alternative Minimum Tax. Under his new simplified plan, Huntsman would eliminate the Alternative Minimum Tax, which he says is not indexed for inflation and is penalizes an increasing number of families and small businesses.
- Eliminate the taxes on capital gains and dividends in order to eliminate the double taxation on investment. Huntsman believes capital gains and dividend taxes amount to a double-taxation on individuals who choose to invest. Because dollars invested had to first be earned, Huntsman says, they have already been subject to the income tax. The Huntsman plan argues taxing these same dollars again when capital gains are realized deters productive and much-needed investment in our economy.
- Reduce the corporate income tax rate from 35 percent to 25 percent. The Huntsman plan argues the United States cannot compete while burdened with the second-highest corporate income tax rate in the developed world. According to Huntsman's plan, reducing the corporate income tax rate will keep American corporations, capital, and jobs at home.
- Shift from a worldwide system of taxation to a territorial system of taxation. Huntsman believes taxing businesses on a worldwide system of taxation punishes companies that bring revenue home to the United States. Shifting to a territorial system, he says, will allow American companies to compete with other global players and allow U.S.-based multinationals to bring capital home and invest in new jobs.
- Implement a tax holiday for repatriation of corporate profits. Huntsman says a tax holiday for repatriation of corporate profits earned overseas would make $400 to $600 billion available for companies to make corporate investments – a critical tool in growing the economy and putting Americans back to work.
But while these sweeping reforms, including the abolishment of capital gains and dividend taxes, may seem promising to some high-earners on the surface, analysts say it still remains to be seen how other components of the plan, like the elimination of all tax credits and deductions, including the mortgage interest deduction and health care deductions, will play out for the average American family.
Although he believes the Huntsman tax reform plan is decidedly "aggressive" in the way it brings tax rates down, Stretch said it is still unclear what the lingering effects of the Huntsman plan, or the tax reform plans of any of the GOP presidential candidates, would be on the average taxpayer.
When former President Ronald Reagan revamped the tax code in 1986, Stretch said, his plan was outlined in 500 pages. The current candidates' tax reform plans are generally outlined in less than 500 words.
"In all of these plans there is an enormous lack of detail. You cannot look at them and find an answer to the basic questions people will struggle with – is there enough revenue in the plan and is the way the tax burden is being shared fair", Stretch said. "The real question here is whether middle class taxes are increasing or decreasing. There simply isn't enough detail to say."
Other lingering questions in the Huntsman plan, according to Stretch, include how the elimination of deductions and credits would balance out against a lower tax rate for individuals; who would ultimately bear the burden of the 25 percent corporate tax rate; and how the loss of deductions, like accelerated depreciation and medical coverage, could impact small business.
"I could look at this and say reducing my tax rate feels pretty good, or I could look at my lost deductions and say that does not feel so good", Stretch said.
Ultimately, the political feasibility of the Huntsman plan, Stretch believes, will come down to how much the average American is willing to sacrifice in deductions and credits, and how fairly the tax burden is shared.
"When you say investment income should be completely exempt from tax, you raise the question, who is supposed to pay more in tax? In America we believe in hard work, in sweat, and in building things. If you exempt investment income, the person with the hammer and saw gets taxed, but the guy who is making the loan doesn't. That is a big shift."