At least since the Wall Street Journal infamously labeled Americans too poor to pay income taxes as "lucky duckies," a certain faction of the conservative movement has vocally complained that the working class isn't paying its fair share. This kind of reverse class resentment went mainstream in 2012, when Mitt Romney was caught on tape complaining about the "47 percent" of Americans with no income tax bill.
But these complaints have rarely been paired with actual plans to make more poor Americans pay higher taxes because, well, it would seem odd for a political party committed to cutting taxes to be committed to cutting taxes for everyone except the poor.
Enter Bobby Jindal.
The governor of Louisiana and long-shot presidential contender, who's currently languishing in eighth place in Iowa, has unveiled a tax plan that would eliminate the standard deduction and personal/dependent exemptions that currently let many working-class families avoid income taxes.
"Every citizen needs to help row the boat, even if only a little," a statement sent to me by a campaign representative explains. "The idea that half of American wage earners would pay no taxes at all only reinforces the fact that we are creating two classes in America, the tax paying class and the dependent class."
There's only one problem: It's just not true that half of American wage earners pay no taxes at all.
Jindal's plan isn't just regressive in a way that's rarely seen in American politics — it's also confused about how the tax code works.
Jindal's plan would cost a ton of money, and almost all the benefits would go to the rich
Jindal's plan is one of the more blatant attempts I've seen from a politician to take money from the poor and give it to the rich.
Jindal would replace the seven current income tax brackets with three: 2 percent, 10 percent, and 25 percent. His top rate is the same as Donald Trump's but below Jeb Bush or Marco Rubio's; it does kick in earlier than Trump's, and that's before even taking into account the deductions he eliminates (which would be all of them, save the earned income tax credit, the charitable deduction, reformed and limited versions of the mortgage and health deductions, and a new deduction for dependents).
Jindal would also completely eliminate the corporate income tax, the estate tax, and the alternative minimum tax (which ensures that wealthy households' taxes don't fall too much due to deductions), as well as all Obamacare-related taxes. Estate tax, AMT, and Obamacare abolition are all standard fare in GOP tax proposals, but corporate tax abolition is unusual. Donald Trump included it in a tax plan he released four years ago but has abandoned the idea this time around, presumably because it's really, really expensive and regressive. (For more details on the plan's specific provisions, see the appendix at the end of this post.)
Jindal himself estimates that federal revenue will be cut by 22 percent, or $9 trillion, under his plan. And that's after taking into account "dynamic" growth effects: Jindal estimates that annual GDP growth will increase by 1.4 per year, with wages spiking in turn, and 5.9 million jobs will be added. He's not the only person making claims like that: Marco Rubio claims his approximately $4 trillion tax cut will pay for itself due to the growth effect. These estimates are way outside what most reputable economists think tax cuts can do.
In any case, the massive reduction in federal revenue is a feature, not a bug: Jindal wants a much smaller federal government, with much smaller taxes to fund it. This strategy — reducing revenues in hopes that concern over deficits will force spending cuts later on — is known as "starve the beast," and it's been repeatedly debunked. Everyone from libertarians like Cato Institute chairman William Niskanen and political scientist Michael J. New to left-leaning economists like Christina and David Romer have found that decreases in federal revenue do not, in practice, lead to decreases in federal spending. The Romers found that the main effect of tax cuts is to force tax increases later.
So Jindal has a hugely expensive, very regressive tax cut plan. Big whoop, so does everybody. Where he sticks out is the focus on raising taxes on the poor — on shrinking the "47 percent." By eliminating the standard deduction, the personal exemption, the dependent exemption, and the child tax credit, he intends to force millions of households that currently owe no income tax to pay up.
It's worth noting how unusual this is, even for a Republican. Other candidates have actively tried to design plans that spare more households from income taxes. Donald Trump would increase the share of households with no income tax burden from 38.3 percent to 56.9 percent in 2018; Jeb Bush would increase it from 38.3 percent to 47.6 percent.
But Jindal wants to shrink the 38.3 percent figure. And his logic for doing so — that "every citizen needs to help row the boat, even if only a little" — doesn't really hold up. Everyone in the US does help row the boat, if only a little. In 2013, 85.6 percent of Americans paid either federal income or payroll taxes. Of those who didn't, 9.7 percent were elderly and 3.4 percent were very poor, making less than $20,000:
But let's say you really want the 14.4 percent of Americans not paying income or payroll taxes to chip in. They already do. They pay the federal gas tax. They pay state and local sales taxes. Some of the elderly probably pay property taxes.
It's hypothetically possible that there's some dude with no taxable income or payroll who lives in Oregon or New Hampshire or another state without sales taxes and never buys gas, alcohol, or cigarettes and owns no property and has thus managed to totally avoid paying taxes to any government entity. His life sounds interesting, but not like a mass social problem in need of remedy.
Jindal has a long track record of trying to raise taxes on the poor
I'll say this for Jindal: His belief in taxing the poor and sparing the rich is deeply held. In his time as governor of Louisiana, Jindal has tried very hard to reduce taxes that mostly hit rich residents, and increase taxes that disproportionately hit the poor.
Before he took office, a referendum had raised rates on income taxes to fund a sales tax cut. It was a progressive tax reform, but Jindal signed into law a repeal of the income tax increases while leaving the sales tax cuts in place. In 2013, he proposed completely eliminating the state's income and corporate taxes and replacing them with bigger sales and cigarette taxes. The left-leaning Institute on Taxation and Economic Policy estimated that the poorest Louisianans would have been paying 3.4 percent more of their income and the top 1 percent would have been paying 2.3 percent less:
That plan didn't come to fruition, but Jindal recently pushed through a hike in the cigarette tax and several other measures (notably excluding an income tax hitting the rich) — and used a really astonishing bit of budget chicanery to force it through. He imposed a $1,600 fee on all public college students but also gave them a $1,600 tax credit. The former doesn't count as a tax increase, but the latter counts as a cut, letting Jindal raise taxes elsewhere without Grover Norquist concluding he raised taxes overall.
Point being: This isn't a new obsession. Jindal has been trying to remake tax codes to hit the poor and spare the rich for years.
Appendix: More details on the Jindal plan
Here are Jindal's brackets, compared with the current code, for singles:
As you'll notice, at any given amount of taxable income, rates under Jindal's plan are lower. But that's slightly misleading, given that eliminating major deductions that everyone gets will increase most people's taxable income substantially.
Jindal eliminates the "marriage penalty" — wherein the combined income of some married couples kicks them into a higher income bracket than they'd be in if they were single — by setting the tax thresholds for married couples at exactly double the thresholds for singles:
That not only eliminates the marriage penalty, but creates a rather large marriage bonus in many cases, especially for single-earner households. Say you're single and make $120,000 a year. You'd be in the 25 percent bracket under Jindal's plan — but if you got married, you'd be in the 10 percent bracket.
Jindal would allow only five tax breaks:
- The charitable deduction, unchanged
- The earned income tax credit, which he'd transfer to the payroll tax to be "easier to audit, administered by employers, and more appropriately mirror income"
- The mortgage interest deduction, which he'd cap at $500,000 mortgages, half the $1 million current cap
- A new deduction for health insurance costs paid by either individual or employer, to replace the exclusion of employer-based health insurance from income taxes. This reform would serve a very similar function to the reviled "Cadillac tax" in Obamacare.
- A new "nonrefundable dependents credit that accounts for household size of dependents: children under the age of 18, elderly making less than $5,000 over the age of 65, and the disabled."
So it's still possible under the plan for someone to end up with a negative tax burden, using those tax breaks. Some working poor families probably would end up paying $0 or less due to the earned income tax credit or the new dependents credit — though with the refundable child tax credit, personal exemption, and standard deduction being eliminated, it would probably be fewer than pay nothing now.
Repealing the corporate income tax, as Jindal proposes, is mostly a tax cut for the very rich. There's some dispute as to who ultimately pays corporate taxes, but Jim Nunns of the Tax Policy Center has found that about 20 percent is paid by workers, and the rest by capital. He concludes that in 2015, the top 1 percent pays 52.8 percent of the corporate tax burden, and the top 0.1 percent pays 33.4 percent. Eliminating the corporate tax could be distribution-neutral if we were to introduce a bunch of new, higher tax rates on rich people. But Jindal does not do that.
The corporate income tax also brings in a lot of revenue — $4.4 trillion from 2016 to 2025, to be exact. Eliminating the corporate tax and replacing it with progressive taxes on individual rich people and/or a carbon tax could be a good idea, but combined with huge individual income tax cuts, it'd be a hugely expensive disaster.
There is one progressive idea in Jindal's proposal: He'd tax capital gains and other investment income like wages. Given his cuts to normal tax rates, that's not as large of a hike on rich people as making them pay the current top rate of 39.6 percent on capital gains would be. But it still raises the rate on the richest capital gains earners a bit: from between 15 and 23.8 percent to 25 percent: