Friday, August 6, 2004

Leonard Burman & Jeffrey Rohaly of the Tax Policy Center have released a 21-page report on Sen. Kerry’s Tax Proposals. Here is the summary:

Senator Kerry has said that he will repeal the Bush tax cuts for households with incomes over $200,000, but not the middle-class tax cuts, which he intends to make permanent. He also proposes a new refundable tax credit for higher education expenses, and changes to the estate tax. On balance, these provisions would reduce federal revenues by at least $425 billion over ten years compared with present law.

Present law assumes that the entire 2001 and 2003 tax cuts sunset in 2010 or before, as scheduled under present law. Since Senator Kerry would extend some of the 2001 and 2003 tax cuts past 2010, and since he would introduce a new higher education tax credit, the net effect of these proposals is to reduce revenue relative to the official current-law baseline. If instead, we assumed that many of the expiring tax cuts would be extended as proposed by the President (a so-called “extended baseline”), these proposals represent a tax increase of $721 billion.

For businesses, Senator Kerry proposes a 5 percent (1.75 percentage point) reduction in corporate tax rates, financed by increasing the tax on US corporations that produce goods and services overseas for third-country markets and by the elimination of corporate tax loopholes. In addition, Kerry would provide a temporary new jobs tax credit for manufacturers, small businesses, and those whose workers are affected by outsourcing, paid for by a “tax holiday”—a discounted corporate tax rate—for companies that repatriate foreign earnings. The campaign has estimated that these provisions together would be roughly revenue neutral. (We have not verified that estimate.)

Three tax credits aim to expand health insurance coverage: a tax credit of up to 50 percent of premiums paid by small businesses on behalf of their employees, a refundable tax credit for 75 percent of premiums paid by displaced workers for up to six months of coverage, and a refundable 25 percent credit for early retirees aged 55 to 64 who do not have access to employersponsored health insurance. The Kerry campaign estimates that these provisions would reduce federal revenues by $177 billion over ten years. (We have not verified these estimates.)

There are also proposals for tax credits for new technology, a tax credit for telecommunications companies that deploy broadband in rural and underserved areas, a 20 percent tax credit for the purchase of energy efficient building equipment, and tax credits for small employers of salaried reservists called up to active duty. The energy-efficient equipment credit would cost roughly $1 billion. No estimates are currently available for the other proposals.