Study: Gingrich tax plan would worsen deficit

By Stephen Ohlemacher

Associated Press

Published: Monday, Dec. 12 2011 4:45 p.m. MST

CORRECTS YEAR TO 2011 - Republican presidential candidate, former House Speaker Newt Gingrich speaks during a campaign stop at Insight Technology in Londonderry, N.H. Monday, Dec. 12, 2011.

Elise Amendola, Associated Press

Enlarge photo»

WASHINGTON — The tax plan by GOP presidential hopeful Newt Gingrich would provide big tax breaks to the rich and blow a huge hole in the federal budget deficit, according to an independent study released Monday.

The analysis by the Tax Policy Center says households making more than $1 million a year would see their taxes drop by an average of 62 percent. Overall, federal tax revenues would drop by an estimated $850 billion in 2015, a figure that would dramatically worsen the budget deficit unless it is offset by unprecedented spending cuts, the study said.

"The revenue losses are enormous," said Roberton Williams, a senior fellow at the Tax Policy Center.

Gingrich proposes an optional 15 percent flat tax on income. Under the plan, taxpayers could stay in the current system, which has a top tax rate of 35 percent on taxable income above $379,150, or switch to the new 15 percent tax. The new tax would apply to income at all levels, but there would be a variety of tax deductions and credits.

Gingrich would eliminate taxes on capital gains, dividends and interest, and reduce the corporate income tax rate from 35 percent to 12.5 percent. The plan would provide a personal deduction of $12,000 for every American, while maintaining the $1,000 per-child tax credit and the Earned Income Tax Credit, which benefits low-income people. Deductions for mortgage interest and charitable donations would also be maintained.

Gingrich campaign spokesman R.C. Hammond disputed the projections on the budget deficit, saying the study doesn't account for the economic and job growth that such a tax system would generate.

The campaign's website says a new flat tax would make it easy for families to file their returns while eliminating taxes that discourage investment.

"An optional flat tax reform will be simple: Tax returns can be done on one sheet of paper," the website says. "Subtract from income a standard deduction and deductions for charity and home ownership, multiply the result by the fixed, single rate of taxation of at most 15 percent, and the process is over."

The analysis comes as the former House speaker has surged to the top of the polls in the race for the Republican nomination for president. Several other candidates have offered variations of the flat tax, including Texas Gov. Rick Perry. Gingrich's chief rival, former Massachusetts Gov. Mitt Romney, has proposed changes to the tax system that are less sweeping.

Gingrich's plan, however, would make it even more difficult for Congress to reduce the federal budget deficit, which was $1.3 trillion in the budget year that ended in September, according to the study. The issue consumed Capitol Hill for several months in the summer and fall, leading to a deficit reduction plan that both Democrats and Republicans dislike.

No one would get a tax increase under Gingrich's plan because households could stay in the current system or switch to the new one, Williams said. Many lower- and middle-income families would probably stay in the current system because they would save money compared to Gingrich's flat tax, he said.

But for the wealthy, lowering the top tax rate and eliminating taxes on investments would provide a huge windfall, according to the study.

For example, a household making between $40,000 and $50,000 would get an average tax cut of 12.1 percent, while a family making between $200,000 and $500,000 would get a tax cut of 27.3 percent, according to the study.

Households making more than $1 million would see their federal income taxes reduced by an average of $607,000 the study said.

The Tax Policy Center compared taxes on U.S. households under current tax policy, with those imposed under the Gingrich plan. In using current tax policy, the analysis assumes that tax cuts enacted under President George W. Bush — and extended through 2012 by Obama — would be extended.

The Tax Policy Center is a research group formed by two Washington think tanks: the Urban Institute and the Brookings Institution. Its researchers regularly testify before Congress on tax policy and its analyses during the 2008 presidential campaign were widely circulated.

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