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Here's Everything Wrong with Jeb Bush's Tax Reform Plan

The U.S. tax code is the backbone of the economy, and right now the complicated mess is doing more harm than good. Jeb Bush's recent proposal could be a step in the right direction. But does it go far enough?

Republican presidential candidate former Florida Gov. Jeb Bush talks to employees at Foss Manufacturing during a campaign stop Thursday, Sept. 3, 2015, in Hampton, N.H. (AP Photo/Jim Cole)

Like much of his campaign, Jeb Bush’s tax reform plan is “weak tea.”

Bush proposes to reduce tax rates, which is a good thing. But he just doesn’t go far enough.

Rather than a bold program to radically reshape the unproductive U.S. tax code, Bush does not go far enough to rewrite the DNA of the U.S. economy.

And make no mistake about it – the tax code is the DNA of the U.S. economy. It creates the incentives that drive businesses and individuals to make certain types of economic decisions that dictate how fast the economy grows.

Republican presidential candidate former Florida Gov. Jeb Bush talks to employees at Foss Manufacturing during a campaign stop Thursday, Sept. 3, 2015, in Hampton, N.H. (AP Photo/Jim Cole)

Now, here’s what we need to be doing instead…

An Alternative to Jeb Bush’s “Buffet” of Tax Brackets

Bush offers three tax rates – 28 percent, 25 percent, and 10 percent – that are still too high. He also wants to cap deductions for wealthy taxpayers, but he isn’t specific about how to do this.

Instead, the right numbers are…

  • 25 percent for those earning more than $1 million;
  • 20 percent for those earning more than $100,000; and
  • 10 percent for those earning more than $10,000 per year.

And we should be eliminating all deductions – except charitable deductions, which should be capped at 20 percent of taxable income per year.

Bush’s plan for only modestly lower rates and the retention of deductions with caps would leave us with a complicated tax code. We would be much better off with a simpler code with lower rates and fewer deductions.

Such a code would likely yield higher revenue and eliminate the distortions introduced into the economy by special-interest tax deductions.

This Plan Still Coddles Debt

Bush only partially addresses the biggest distortion introduced into the economy by the tax code – the unduly favorable treatment of debt.

Every time someone borrows money, the American taxpayer becomes a kind of silent partner in that transaction by participating in the tax subsidy that the tax code provides.

No wonder debt keeps growing

The deductibility of interest should be eliminated entirely, but Bush only proposes to eliminate the deductibility of business interest expense, rather than all interest expense. There is no inherent reason why debt should be treated more favorably than equity.

By eliminating the deductibility of debt – including the deduction for interest on home mortgages – we can begin to recapitalize our economy with equity.

Income Is Income, So Tax It That Way

And Bush fails to address the differential between capital gains and ordinary income, which is one of the major contributors to growing wealth inequality.

All income should be taxed at the same rate, whatever its source.

Taxing income generated by capital at a lower rate than income generated by labor favors the wealthy. The capital gains tax should be eliminated, and all income should be taxed at the “25/20/10” rates I described above.

Finally, Bush offers to cut the corporate tax rate from 35 percent to 20 percent. Bush is on the right track here… but again, his proposal is just too timid.

That proposed rate isn’t competitive enough; I would lower it to 17.5 percent.

The U.S. corporate tax rate is too high, and that encourages American companies to move their businesses to lower-cost jurisdictions. And that of course costs this country jobs and tax revenue.

But as things are now, Bush may not get the chance to make any changes at all…

Time to Take Bolder Measures

Thus far, Bush has been overshadowed by Donald Trump, who is long on spectacle but short on specifics.

On taxes, Democratic frontrunner Hillary Clinton has proposed raising taxes based on a totally unfounded theory that raising taxes will increase long-term investment. Clinton has no clue how the economy works and her proposal would be a disaster for markets and the economy.

What the Republicans need is a candidate like Bush who has a distinguished record as a state governor, but who is actually willing to be bold in taking on the problems facing the country – without engaging in ridiculous rhetoric that insults women and minorities.

Like I said, Bush is on the right track, but he doesn’t go far enough with his tax proposal. Hopefully, he will improve it, lest another Republican pick up the mantle of change that is so sorely needed.

TheBlaze contributor channel supports an open discourse on a range of views. The opinions expressed in this channel are solely those of each individual author.

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