NCPA - National Center for Policy Analysis

Bauer's Tax Plan Is Misguided

September 29, 1999

On September 23, Republican presidential candidate Gary Bauer unveiled his tax plan, which would institute a single 16 percent tax rate with large family allowances. He hopes that his plan will be seen as a more family-friendly alternative to the flat tax pushed by fellow candidate Steve Forbes. In reality, the Bauer plan will not help families, but hurt them severely by destroying jobs and reducing incomes.

One of the key features of the Forbes plan is an immediate write- off for business investment in plant and equipment. Presently, tax law requires such investment to be depreciated over a period of years.

Bauer believes that businesses should not be allowed any write- off for capital at all, because investment in human capital receives no similar benefit. Says Bauer, "Why should working Americans not be able to write off the costs of maintaining a home? Or raising children?"

Capital necessarily is something that exists to produce income. Economists limit their definition of human capital to such things as education and training. Bauer simply redefines consumption by children to be capital.

Current law already treats education fairly well through tax deductions and incentives. Many economists believe true investments in human capital are treated on a par with investments in tangible capital.

More importantly, eliminating depreciation of plant and equipment would dramatically slash such investment. This would destroy jobs, send the stock market crashing and reduce productivity, leading to lower wages and pensions for workers.

Bauer thinks that eliminating business depreciation for capital investment will bring $800 billion of currently untaxed income into the tax net. I think it would raise no revenue at all, probably plunge the Unites States into a massive recession and utterly destroy the competitiveness of American businesses. This is no way to help families.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, September 29, 1999.

 

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