Analysis of Newt Gingrich’s Individual Income Tax Plan
Summary
Newt’s individual income tax plan is a 15 percent optional flat tax with some deductions and credits. Wealthy taxpayers will see huge tax cuts. Lower income tax payers will pay roughly the same. In between, the taxes decrease as income increases and family size decreases. Most families will receive a net tax refund.
- It is an optional 15 percent flat tax.
- There is a $12,000 personal deduction per adult.
- A married couple can deduct $48,000.
- Mortgage interest and charitable contributions can also be deducted.
- It keeps the Earned Income Tax Credit and $1,000 Child Tax Credit.
- Wealthy taxpayers receive huge tax cuts under the plan.
- Low income taxpayers receive little or no tax cuts.
- In between, tax cuts get larger as income increases and/or family size decreases.
- Very few taxpayers lose money under the plan compared to the current tax code. When they do, it is less than $20.
- Married couples, who currently itemize their deductions, may reach $60,000 to $80,000 without paying any tax, depending on family size and deductions. If they have children, they will also get a refund from the Child Tax Credit.
- The flat tax is still progressive because of the deductions and credits, especially the $48,000 personal deduction for married couples.
- Anyone can deduct charitable contributions. This could lead to an increase in deductions for charitable contributions and possibly more people donating to charity.
What is Newt Gingrich’s Individual Income Tax Plan?
Newt Gingrich’s tax plan is an optional 15 percent flat tax. Like most flat taxes, he exempts income near the poverty threshold. Here is how it is described:
This optional flat tax system will create a new personal deduction for every adult of $10,000 to $12,000 (double for married couple), which would be above the established poverty level at $40,000 to $48,000.
That is a somewhat awkward sentence. At first it seems that a married couple gets 2 deductions of $12,000. Then it seems that he is saying the poverty level is $40,000 to $48,000. However, the poverty level is not $48,000, and $40,000 and $48,000 are 4 times larger than $10,000 and $12,000. It appears that the husband and wife both take a $12,000 deduction for a total of $24,000, and then, as a married couple, the total amount is doubled from $24,000 to $48,000. The same calculation can be used to get $40,000 from $10,000.
In his 21st Century Contract with America, he mentions $12,000 as the deduction amount. Thus, a married couple receives a $48,000 personal deduction, and a single individual gets a $12,000 deduction. That means a married couple with an income at $48,000, or below, is paying $0 tax.
The plan also provides the option to deduct mortgage interest and charitable donations.
After that, the leftover income is taxed at a flat 15 percent rate. Then, the plan keeps the current Child Tax Credit, which is $1,000 per child (16 or younger), so a married couple with 2 children doesn’t start paying taxes until over $60,000. It’s even higher if they have a mortgage or donate to charity.
The Child Tax Credit is refundable, which means that if it reduces the tax below $0, the taxpayer receives a refund for the amount.
For example, the couple with 2 children making $60,000 deducts $48,000, so the remaining $12,000 ($60,000 - $48,000) is taxed at 15 percent. The tax is $1800 (15% of $12,000), but they receive a $1000 credit for each of their 2 children. The $2000 credit is more than the $1800 tax, so they get a $200 refund.
Also, the plan keeps the Earned Income Tax Credit, which is a refundable tax credit for lower income households.
How much do people pay under Newt Gingrich’s Plan?
To calculate the taxes under Newt Gingrich’s plan, the income was subtracted by the $12,000 personal deduction ($48,000 for married couples.) For those who itemize, the average mortgage interest and charitable contribution deductions were taken from the IRS statistics for 2009 (which is the latest version.) The remainder is the taxable income, which was multiplied by 15 percent to get the total tax. Then the Child Tax Credit and Earned Income Tax Credit were subtracted from the tax, where applicable.
Here is how much people pay under Newt’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 | $260 | ($1,200) | ($2,700) | ($4,200) | ($5,700) | ($7,200) | ($8,700) | ($10,200) | ($11,700) | ($13,200) | ($28,200) | ($73,200) | ($148,200) |
| 0 | $450 | $0 | $0 | $0 | ($300) | ($1,800) | ($3,300) | ($4,800) | ($6,300) | ($7,800) | ($22,800) | ($67,800) | ($142,800) | |
| married | 1 | $4,050 | $4,050 | $2,680 | $1,080 | $700 | ($800) | ($2,300) | ($3,800) | ($5,300) | ($6,800) | ($22,800) | ($67,800) | ($142,800) |
| filing | 2 | $5,060 | $7,030 | $5,230 | $3,120 | $1,700 | $200 | ($1,300) | ($2,800) | ($4,300) | ($5,800) | ($22,800) | ($67,800) | ($142,800) |
| jointly | 3 | $5,560 | $8,210 | $6,860 | $4,750 | $2,700 | $1,200 | ($300) | ($1,800) | ($3,300) | ($4,800) | ($22,800) | ($67,800) | ($142,800) |
Red and in parenthesis means they pay taxes. Otherwise, they receive a refund in the amount shown.
Here is how much people pay under Newt’s income tax plan in 2010 if they deduct mortgage interest and charitable contributions (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 | $260 | $0 | ($1,148) | ($2,511) | ($3,957) | ($5,304) | ($6,804) | ($8,122) | ($9,622) | ($10,613) | ($23,978) | ($65,836) | ($136,854) |
| 0 | $450 | $0 | $0 | $0 | $0 | $0 | ($1,404) | ($2,722) | ($4,222) | ($5,213) | ($18,578) | ($60,436) | ($131,454) | |
| married | 1 | $4,050 | $4,050 | $2,680 | $1,080 | $1,000 | $1,000 | ($404) | ($1,722) | ($3,222) | ($4,213) | ($18,578) | ($60,436) | ($131,454) |
| filing | 2 | $5,060 | $7,030 | $5,230 | $3,120 | $2,000 | $2,000 | $596 | ($722) | ($2,222) | ($3,213) | ($18,578) | ($60,436) | ($131,454) |
| jointly | 3 | $5,560 | $8,210 | $6,860 | $4,750 | $3,000 | $3,000 | $1,596 | $278 | ($1,222) | ($2,213) | ($18,578) | ($60,436) | ($131,454) |
Single people get a $12,500 deduction, so they don't pay taxes when their income is below that. It is more if they take the mortgage and charity deductions. The same is true for married couples at or below their $48,000 deduction. If the married couples have children, they get refunds when their income is up to $60,000 to $80,000 because they have the Earned Income Tax Credit (EITC) and the Child Tax Credit. Singles and couples also get a refund from the EITC.
How Does Newt Gingrich’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 Newt’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 | $63 | ($17) | ($17) | ($17) | $650 | $1,650 | $2,650 | $3,650 | $4,650 | $5,898 | $19,831 | $76,171 | $176,171 |
| 0 | ($7) | $131 | $1,133 | $2,361 | $3,561 | $3,561 | $3,561 | $3,461 | $3,594 | $4,394 | $16,208 | $70,963 | $170,963 | |
| married | 1 | $0 | $0 | $767 | $1,811 | $3,014 | $3,014 | $3,014 | $2,914 | $2,714 | $3,481 | $15,186 | $69,686 | $169,686 |
| filing | 2 | $0 | ($6) | $401 | $1,397 | $2,466 | $2,266 | $2,466 | $2,366 | $2,166 | $2,569 | $14,164 | $68,700 | $168,408 |
| jointly | 3 | ($1) | ($6) | $34 | $1,032 | $1,919 | $1,919 | $1,919 | $1,819 | $1,619 | $1,656 | $13,613 | $68,700 | $167,131 |
Red numbers in parenthesis means they lose money under Newt Gingrich’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 | ($3) | $34 | ($18) | ($8) | $46 | $59 | $1,059 | $1,603 | $2,603 | $2,412 | $10,395 | $50,001 | $128,921 |
| 0 | ($7) | $0 | $738 | $1,583 | $2,826 | $4,124 | $4,220 | $3,919 | $3,719 | $3,008 | $9,307 | $46,787 | $125,707 | |
| married | 1 | $0 | $0 | $372 | $1,215 | $2,279 | $3,576 | $3,672 | $3,372 | $3,172 | $2,461 | $8,285 | $45,510 | $124,430 |
| filing | 2 | $0 | ($6) | $4 | $847 | $1,731 | $3,029 | $3,125 | $2,824 | $2,624 | $1,913 | $7,354 | $44,749 | $123,152 |
| jointly | 3 | ($1) | ($6) | ($2) | $482 | $1,348 | $2,481 | $2,577 | $2,277 | $2,077 | $1,366 | $6,441 | $44,749 | $121,875 |
Let’s look at the numbers in a chart:
This is why the chart doesn't include $200,000 and above:
As with most flat taxes, the wealthy get huge tax cuts. The lower income taxpayers get little or no tax cuts. Taxpayers get better tax cuts as their income increases and their family size decreases to single. Very few taxpayers lose money. When they do lose money it is less than $20. The tax is optional, so those taxpayers can opt for the current system.
The 15 Percent Flat Tax is Still Progressive
Here are the effective 2010 tax rates for those who only take the standard personal 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 | -2.60% | 6.00% | 9.00% | 10.50% | 11.40% | 12.00% | 12.43% | 12.75% | 13.00% | 13.20% | 14.10% | 14.64% | 14.82% |
| 0 | -4.50% | 0.00% | 0.00% | 0.00% | 0.60% | 3.00% | 4.71% | 6.00% | 7.00% | 7.80% | 11.40% | 13.56% | 14.28% | |
| married | 1 | -40.50% | -20.25% | -8.93% | -2.70% | -1.40% | 1.33% | 3.29% | 4.75% | 5.89% | 6.80% | 11.40% | 13.56% | 14.28% |
| filing | 2 | -50.60% | -35.15% | -17.43% | -7.80% | -3.40% | -0.33% | 1.86% | 3.50% | 4.78% | 5.80% | 11.40% | 13.56% | 14.28% |
| jointly | 3 | -55.60% | -41.05% | -22.87% | -11.88% | -5.40% | -2.00% | 0.43% | 2.25% | 3.67% | 4.80% | 11.40% | 13.56% | 14.28% |
Here are the effective 2010 tax rates for those who also deduct the average mortgage interest and charitable contributions:
| 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 | -2.60% | 0.00% | 3.83% | 6.28% | 7.91% | 8.84% | 9.72% | 10.15% | 10.69% | 10.61% | 11.99% | 13.17% | 13.69% |
| 0 | -4.50% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 2.01% | 3.40% | 4.69% | 5.21% | 9.29% | 12.09% | 13.15% | |
| married | 1 | -40.50% | -20.25% | -8.93% | -2.70% | -2.00% | -1.67% | 0.58% | 2.15% | 3.58% | 4.21% | 9.29% | 12.09% | 13.15% |
| filing | 2 | -50.60% | -35.15% | -17.43% | -7.80% | -4.00% | -3.33% | -0.85% | 0.90% | 2.47% | 3.21% | 9.29% | 12.09% | 13.15% |
| jointly | 3 | -55.60% | -41.05% | -22.87% | -11.88% | -6.00% | -5.00% | -2.28% | -0.35% | 1.36% | 2.21% | 9.29% | 12.09% | 13.15% |
The negative numbers represent taxpayers who get money back from the Earned Income Tax Credit and the Child Tax Credit. The zeros come from those who eliminate their tax using deductions and credits.
As with most of the flat taxes, this tax is not actually flat. It is progressive mostly because of the $12,000 personal deduction, which is $48,000 for a married couple.
Unique Features of the Plan
Newt
does a couple of things that makes this more friendly to the taxpayer
compared to other flat taxes. Firstly, he makes it optional, so nobody
is losing money. Flat taxes are especially punitive on the lower income
taxpayers, but this plan is neutral to them. Secondly, he includes the
Earned Income Tax Credit and the Child Tax Credit, so it is more friendly
to families and those below the poverty line. The $48,000 personal deduction for married couples combined with the Child Tax Credit gives refunds to a lot of low and middle income families.
More Deductions of Charitable Contributions (and Possibly More Charitable Contributions)
There is an interesting difference here between this and the current tax code. Under the current tax code, the choice is between the standard deduction or itemized deductions, so a taxpayer can only deduct something if their itemized deductions are more than the standard deduction (typically that means they have a mortgage or large medical bills.) Under this plan, anyone can deduct charitable contributions.
This could lead to more people deducting their charitable contributions, and it may lead to more people giving to charity.
Link to this article:
http://articlesonpolitics.blogspot.com/2011/12/analysis-of-newt-gingrichs-individual.html
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