The Wall Street Journal recently ran an editorial in which they declared that New Jersey Governor Chris Christie’s tax plan is more pro-growth than Florida Senator Marco Rubio’s.
The determining factor? That the Christie plan features a top personal income tax rate of 28 percent, whereas the Rubio plan’s top rate is 35 percent. This shoddy, surface level tax analysis is very surprising given that the Wall Street Journal editorial board is such a trusted source on taxes for conservatives.
Let’s begin by stating that both plans are exceptionally good and each campaign should be proud of what they have developed. Either plan is far better than our current tax code.
The Christie and Rubio tax plans have a few big things in common. They both move from multi-year “depreciation” deductions of business investments to immediate expensing. They both transition from a worldwide to a territorial system of taxation, where only income earned in the United States is subject to IRS taxation. They both cut the corporate income tax rate to 25 percent.
So far, so good. Each plan is pro-growth based on these factors alone, and each is worthy of conservative support. But is the Christie plan more pro-growth, as the Journal claims?
The Rubio plan keeps doubling down on the growth from the list above. The capital gains and dividends rate is cut from 23.8 percent to 0 percent under Rubio; Christie leaves them where they are today. Ditto for the death tax, which Rubio repeals but Christie leaves at its current 40 percent rate. Rubio cuts the tax rate on flow-through firms like partnerships and S-corporations to 25 percent, while Christie cuts them to 28 percent.
It’s true that Christie cuts the personal income tax rate lower than Rubio — 28 percent for Christie vs. 35 percent for Rubio — but that’s pretty minor in the grand scheme of things. The Wall Street Journal editorial board is asking readers to believe that a seven percentage point difference in a tax rate at these levels is more important than zeroing out the capital gains and dividends tax, a lower rate on small businesses and killing the death tax.
If your goal is pro-growth tax policy, that’s just plain bad analysis and is wrong.
The only income to speak of taxed at Rubio’s 35 percent rate is wages (the return on savings is not taxed, and business income is taxed at 25 percent). Most economists will tell you that wages are not sensitive to such a small tax change at the difference between the Rubio rate of 35 and the Christie rate of 28. There should be very little pro-growth daylight here between the two plans.
Both plans are pro-growth. A simple comparison like the one I just did above would reveal that the Rubio plan is more pro-growth, despite a slightly higher top marginal income tax rate on wages than the Christie plan. This drawback is more than overcome by superior pro-growth treatment of capital gains, dividends, estates and smaller firms. I can’t imagine a conservative economist disagreeing with that.
All this highlights a larger point about tax plans and this presidential cycle: Campaigns need to do the hard work of arriving at a plan (as these two campaigns have done). They need to move beyond simple questions like “what’s the top rate?” or “how many rates?” Almost certainly, these are the least important considerations of a plan from a pro-growth perspective. More important questions include the treatment of business fixed investment, international tax rules, the business tax rate, the tax rate on savings and the tax rate on estates. Answer those questions, and you’ve gone a long way to determining how pro-growth your tax plan is.
But that requires a rigorous sense of tax policy planning and ownership on the part of these campaigns — not a bad thing considering that they will actually have to defend these plans in the primary and general elections.
It also requires more than a superficial glance from the Wall Street Journal and others who purport to give a detailed tax analysis. It’s still early, but we can do better than this.
Ryan Ellis is Americans for Tax Reform’s tax policy director. Thinking of submitting an op-ed to the Washington Examiner? Be sure to read our guidelines on submissions.
