Newt Gingrich actually released his tax plan months ago, when he languished in the polls. It was notable at the time only for the fact that it followed the shift of then front-runners Herman Cain and Rick Perry toward a flat tax. Gingrich himself invited the comparisons with Perry’s plan, which was a more traditional flat tax than Cain’s 9-9-9 approach.
But Gingrich’s plan cut taxes further than Perry, with a flat 15% rate on income and a corporate tax rate of just 12.5%, while retaining most major deductions, from the child tax credit and the Earned Income Tax credit to deductions on charitable giving and mortgage interest. He would also eliminate the capital gains tax and gradually replace the payroll tax with private Social Security accounts. What you don’t see here is any effort to balance major giveaways in the tax code with any increases elsewhere.
Nobody had any interest in actually scoring Gingrich’s plan until he surged in the polls. But now, the Tax Policy Center has taken a look. And they found that his plan would give the top 1% a $428,000 annual tax cut, and the top 0.1% a tax cut of $2.3 million. By contrast, wage earners in the lowest quintile would save around $649. The percentage change in after-tax income is relevant here. Low-income Americans would see their after-tax income rise by 2.6%. The top 1% would see it rise by 33.6%, and the top 0.1% would see it rise by 44.2%. The data on average federal tax rate changes are similar. If you want to use millionaires as a baseline, their average tax break would be almost $760,000.
As I mentioned, Gingrich’s plan gives out free money. Nobody’s taxes go up under his plan; in fact, taxpayers have a choice of sticking with the old plan or going with the flat tax. (Most low-income people do better under the old plan, in fact). So as a result, the federal deficit explodes under this plan. Howard Gleckman of the TPC estimates a $1 trillion addition to the deficit per year, and $1.3 trillion by 2015, for a 10-year budget window cost of well over $10 trillion. The majority of this windfall would go to the rich and the upper-middle class. Among individuals, 81% of the total tax breaks go to people making over $100,000 a year, and 35.4% go to millionaires.
Obviously, this plan has no chance of becoming law. But that’s what Gingrich plans to run on in the primary: an enormous tax cut for millionaires and billionaires that would completely paralyze government’s ability to function by draining it of nearly half of all tax revenue.
Moreover, this shows the extreme inequities that arise with every flat tax proposal, all of which sound good every four years in a Republican primary, and all of which usually crash and burn when they meet reality.