Tax Policy Center Estimates Newt Gingrich's Tax Plan

A few days ago, the Tax Policy Center (TPC) came out with a distributional and revenue score for Newt Gingrich's tax plan.

It is similar to Rick Perry's plan in that it gives taxpayers a choice between staying in the current tax system and paying in a new flat tax system. However, Gingrich's plan differs in a few respects. While estimates of Perry's plan have assumed that the 2001/2003 tax cuts would expire in the current system, TPC believes that Gingrich would extend the tax cuts. Gingrich would also have lower rates in the flat tax system for individuals (15 percent) and corporations (12.5 percent) than Perry's single 20 percent rate. Finally, unlike Perry, Gingrich would retain the Earned Income Tax Credit and the Child Tax Credit.

Other features of the tax system that are similar to Perry's include providing a very generous standard deduction and dependent exemptions, allowing immediate expensing of all capital investments, eliminating capital gains taxes, and retaining the mortgage interest and charitable deductions.

TPC's analysis shows significant revenue loss from the plan. Looking only at 2015, TPC finds the plan would lose $1.28 trillion relative to current law (2001/2003 tax cuts and AMT patches expire)  and $850 billion relative to current policy. In getting to these numbers, TPC did make some assumptions that would worsen the fiscal impact of the tax plan. First, they assumed that Gingrich's corporate tax rate cut would not be accompanied by any reductions in corporate tax expenditures (since none have been identified). If aggressive enough, base broadening and other corporate reforms could be sufficient to bring the rate down to 25% or so on a revenue neutral basis -- making the cost of reducing the rate to 12.5% about $100 billion cheaper in 2015.

Second, the revenue numbers assume that taxpayers are able to pick their optimal tax system in 2015. If taxpayers could, say, only switch between systems once per lifetime (as Perry proposed), it would affect the revenue number somewhat. Assuming that everyone paid under the flat tax system, TPC estimates revenue losses at $1.25 trillion relative to current law and $830 billion relative to current policy.

Click here to see the full TPC analysis, including distributional tables.