Analysis of Jon Huntsman’s Individual Income Tax Plan

Analysis of Jon Huntsman’s Individual Income Tax Plan

Summary

The plan eliminates all deductions and credits and reduces the tax rates to 8, 14 and 23 percent.  As with the other flat/flatter tax plans, this gives huge tax breaks to those with high incomes, while those with low incomes lose money. In between, benefits increase as income increases and family size decreases.

• The plan is one version of The Zero Plan from the Simpson-Bowles Fiscal Commission.
• It reduces the number of marginal tax rates from 6 to 3.
• It also lowers the rates to 8, 14 and 23 percent.
• However, these lower rates don’t necessarily result in a tax cut because the plan also eliminates all deductions, exemptions and credits.
• Families rely on tax credits, deductions and exemptions to significantly reduce their taxes.
• Lower income households receive tax credits, such as the Earned Income Tax Credit, which give them extra money, even if they don’t pay any income tax. 
• A family of 5 with a $20,000 income loses over $8,000 under the plan. 
• Basically, the plan benefits those who use very few deductions, credits and exemptions, such as a single individual taking only the standard deduction.
• Families with children tend to lose money because they have available tax credits, deductions and exemptions.
• Those who currently itemize their deductions don't gain as much.
• Higher income taxpayers receive large tax cuts, regardless of family size or deductions. 
• Tax cuts get smaller as family size increases and income decreases.

What is Jon Huntsman’s Individual Income Tax Plan?

Here is how Huntsman describes his plan: 

Gov. Huntsman supports a version of the plan crafted by the Fiscal Commission, headed by Erskine Bowles and Alan Simpson, commonly known as the "zero plan". Rather than nibble around the edges of the existing tax code, he will introduce a revenue-neutral plan that eliminates all deductions and credits in favor of three drastically lower rates of 8%, 14% and 23%. 

http://www.jon2012.com/issues/jobs-economy-tax-reform 

Huntsman uses the Simpson-Bowles tax plan, specifically The Zero Plan which eliminates all deductions and credits.  This plan replaces the 10 and 15 percent brackets with an 8 percent bracket; the 25 and 28 percent brackets with a 14 percent; and the 33 and 35 percent brackets with a 23 percent bracket.

These are the current 2010 tax rates:
 

Tax Rate	Single	Married filing jointly or qualifying widow/widower	Married filing separately	Head of household
10%	Up to $8,375	Up to $16,750	Up to $8,375	Up to $11,950
15%	$8,376 - $34,000	$16,751 - $68,000	$8,376 - $34,000	$11,951 - $45,550
25%	$34,001 - $82,400	$68,001 - $137,300	$34,001 - $68,650	$45,551 - $117,650
28%	$82,401 -$171,850	$137,301 - $209,250	$68,651 - $104,625	$117,651 - $190,550
33%	$171,851 – $373,650	$209,251 - $373,650	$104,626 - $186,825	$190,551 - $373,650
35%	$373,651 or more	$373,651 or more	$186,826 or more	$373,651 or more

These are the 2010 tax rates as they would have been under Huntsman's plan:
 

Tax Rate	Single	Married filing jointly or qualifying widow/widower	Married filing separately	Head of household
8%	Up to $34,000	Up to $68,000	Up to $34,000	Up to $45,550
14%	$34,001 - $171,850	$68,001 - $209,250	$34,001 - $104,625	$45,551 - $190,550
23%	$171,851 or more	$209,251 or more	$104,626 or more	$190,551 or more

These are marginal rates.  This means different portions of the total income are charged different rates. For example, a single person making $100,000 is not taxed at 14 percent (which would be $14,000 in taxes.) Their first $34,000 is taxed at 8 percent ($2,720.) Their next $66,000 is taxed at 14 percent ($9,240.) So their total tax is only $11,960, which is 11.96 percent instead of 14 percent.
 

How much do people pay under Jon Huntsman’s Plan?

To calculate the taxes under Jon Huntsman’s plan for 2010, the income was subtracted by a $3,650 exemption for the individual, spouse and children. Then it is subtracted by the standard deduction, which is $5,700 for singles and  $11,400 for married filing jointly. The result is the taxable income.  The tax brackets shown in the previous sections were used to calculate the tax.  The first $34,000 ($68,000 for married) of taxable is taxed at 8 percent.  After that, the taxable income is taxed at 14 percent, if there is any, and so on according to the rates.

Here is how much people would have paid under Jon Huntsman’s income tax plan in 2010:
 

	Children	$10,000	$20,000	$30,000	$40,000	$50,000	$60,000	$70,000	$80,000	$90,000	$100,000	$200,000	$500,000	$1,000,000
single	0	($52)	($852)	($1,652)	($2,452)	($3,651)	($5,051)	($6,451)	($7,851)	($9,251)	($10,651)	($26,343)	($95,343)	($210,343)
	0	$0	($104)	($904)	($1,704)	($2,504)	($3,304)	($4,104)	($4,904)	($5,902)	($7,302)	($21,302)	($87,787)	($202,787)
married	1	$0	$0	($612)	($1,412)	($2,212)	($3,012)	($3,812)	($4,612)	($5,412)	($6,791)	($20,791)	($86,947)	($201,947)
filing	2	$0	$0	($320)	($1,120)	($1,920)	($2,720)	($3,520)	($4,320)	($5,120)	($6,280)	($20,280)	($86,108)	($201,108)
jointly	3	$0	$0	($28)	($828)	($1,628)	($2,428)	($3,228)	($4,028)	($4,828)	($5,769)	($19,769)	($85,268)	($200,268)

Red and in parenthesis means they pay taxes. Otherwise, they receive a refund in the amount shown.

Basically those who earn less than the standard deduction and exemption pay $0 in taxes.  For single individuals, it is slightly less than $10,000.  For families it's around between $20,000 and $30,000 depending on the number of children.

Other than that, the best gauge of the rates is to compare them wiht the current tax code.
 
How Does Jon Huntsman’s Plan Compare to the Current Tax Code?

The 2010 taxes under the current tax code are calculated using only the standard deduction and personal exemptions.  The Child Tax Credit and Earned Income Tax Credit were taken where possible. For those who itemize deductions, the average total itemized deductions from the IRS statistics for 2009 (which is the latest version) were used instead of the standard deduction. 

Here is how much people would have gained under Huntsman’s income tax plan in 2010 if they only took the standard deduction:
 

	Children	$10,000	$20,000	$30,000	$40,000	$50,000	$60,000	$70,000	$80,000	$90,000	$100,000	$200,000	$500,000	$1,000,000
single	0	($249)	$331	$1,031	$1,731	$2,699	$3,799	$4,899	$5,999	$7,099	$8,447	$21,688	$54,028	$114,028
	0	($457)	$27	$229	$657	$1,357	$2,057	$2,757	$3,357	$3,992	$4,892	$17,706	$50,977	$110,977
married	1	($4,050)	($4,050)	($2,525)	($681)	$102	$802	$1,502	$2,102	$2,602	$3,490	$17,195	$50,539	$110,539
filing	2	($5,060)	($7,036)	($5,149)	($2,843)	($1,154)	($454)	$246	$846	$1,346	$2,089	$16,684	$50,393	$110,101
jointly	3	($5,561)	($8,216)	($6,854)	($4,546)	($2,409)	($1,709)	($1,009)	($409)	$91	$687	$16,644	$51,232	$109,663

Red numbers in parenthesis means they lose money under Jon Huntsman’s plan.
 
Here are the gains for those who also itemize their deductions at the average rate:
 

	Children	$10,000	$20,000	$30,000	$40,000	$50,000	$60,000	$70,000	$80,000	$90,000	$100,000	$200,000	$500,000	$1,000,000
single	0	($315)	($818)	($522)	$51	$352	$312	$1,412	$1,874	$2,974	$2,374	$8,030	$20,494	$55,432
	0	($457)	($104)	($166)	($121)	$322	$820	$1,520	$1,737	$2,039	$919	$6,583	$19,437	$54,375
married	1	($4,050)	($4,050)	($2,920)	($1,277)	($933)	($436)	$264	$482	$982	($117)	$6,072	$18,999	$53,937
filing	2	($5,060)	($7,036)	($5,546)	($3,393)	($2,189)	($1,691)	($991)	($774)	($274)	($1,154)	$5,652	$19,078	$53,499
jointly	3	($5,561)	($8,216)	($6,890)	($5,096)	($3,280)	($2,947)	($2,247)	($2,029)	($1,529)	($2,190)	$5,250	$19,917	$53,061

Here are the numbers in a chart:

This is why the chart doesn't include $200,000 and above:

 

As with most flat taxes, the higher income taxpayers receive large tax cuts, and the lower income taxpayers lose money.  However, for the single individuals and married couples with no children, as their income increases to around $20,000 and above they receive a tax cut, if they currently only take the standard deduction.  The tax cuts grow larger as their income increases.

Although, if they currently itemize their deductions, the income level where they begin to get tax cuts is closer to $40,000 to $50,000.  

Lower income families lose thousands of dollars because they don't receive refundable tax credits, like the Earned Income Tax Credit and the Child Tax Credit, which gives them refunds even when they pay no tax. That is why a family of 5 with a $20,000 income loses over $8,000 under the plan.

The Child Tax Credit is $1,000 per child, so a family with 3 children and an income of $80,000 still loses money, if they take the standard deduction.  If they itemize at the average rate, they are losing money even at $100,000.

 

Basically, the plan benefits those who use very few deductions, credits and exemptions, such as a single individual taking only the standard deduction.  Families with children tend to lose money because they have available tax credits, such as the Child Tax Credit and the Earned Income Credit.  Those who currently itemize their deductions don't gain as much.  The higher income taxpayers receive large tax cuts, and the tax cuts get smaller as family size increases and income decreases.


Link to this article:

http://articlesonpolitics.blogspot.com/2011/12/analysis-of-jon-huntsmans-individual.html