How Jeb Bush would've saved $3M with his own tax plan

Jeb Bush on CNBC's "Squawk Box" September 9, 2015.
David Orrell | CNBC
Jeb Bush on CNBC's "Squawk Box" September 9, 2015.

All kinds of people will have lower taxes if Jeb Bush gets his way with the tax code—especially those who earn the sort of money the candidate himself has.

In fact, a Big Crunch analysis of the most recent six years of Bush's tax returns available suggest he would have saved more than $3 million, had his proposals had been enacted at the time.

In 2013 alone, the most recent year available, Bush would have saved nearly $800,000 of the nearly $3 million he paid the federal government in taxes. Most of that would have come from wages and business, which account for 91 percent of his total taxable income.

In June, Bush released 33 years of tax returns—more than any other major presidential candidate in history. The returns show his business growth as a real estate player in Florida, the drop in income when he took office as governor, and sky-rocketing income as a consultant and speaker in the years since leaving office.

"On the top end you have businesses that allow you to take a lot of expense deductions that the lower end doesn't have," said Timothy Gagnon, faculty director for the MST and MSA online programs at Northeastern University. "If I'm an average guy and I buy the Boston Globe, I just pay for it, but if I need the Boston Globe to keep up with business affairs, I get to deduct it."

Bush outlined his tax plan in a speech at a poultry-cooling-equipment facility in North Carolina on Wednesday and in an op-ed in the Wall Street Journal. He later went on a media blitz extolling the virtues of his proposal, including an appearance on CNBC's "Squawk Box."

As expected, parts of the plan play a familiar Republican tune: Reducing the number of tax brackets from seven to three would simplify the tax code for millions of Americans and a lower overall corporate tax rate could help spur economic growth. But there's also some unfamiliar populist notes in there, like taxing carried interest as regular income and eliminating federal income taxes for families making less than $38,600.

"The highest earners will actually pay a greater share of the taxes than they did before," a Bush spokesman wrote in an email.

Bush himself would see his after-tax adjusted gross income rise 10.9 percent, based on 2013 taxes.

Bush's plan would also reduce taxes on investments to a flat 20 percent, which he says is necessary to encourage necessary economic growth. That would have saved him about $45,000 on his taxes between 2008 and 2013, according to our analysis.

The top 10 percent of taxpayers might see their portion of the tax-burden pie increase, but the whole pie would be a lot smaller. An analysis of the plan by the conservative-leaning Tax Foundation found that taxpayers would see their after-tax adjusted gross income (AGI) increase by 11.3 percent on average and the top 1 percent of taxpayers would receive an increase of 16.4 percent.

The Tax Foundation's analysis also said the plan would cut taxes by $3.6 trillion over a decade. Including the economic growth the foundation expects based on the plan, that would mean around $1.6 trillion less in government revenue.

Bush's plan would also change how deductions are applied for millions of taxpayers.

In 2013, Bush claimed more than $60,000 in deductions for local taxes. Nonetheless, thanks to charitable giving's exception from the 2 percent cap, Bush's itemized deduction would be over $150,000, nearly three times the amount he actually claimed. According to a similar analysis by a columnist at the Washington Post, Bush would have been able to claim three times as much in deductions under his plan.

"I find it intriguing that he's picking out a lot of the major tax deductions," said Northeastern University's Gagnon. "But for his own taxes, it doesn't totally affect him, because a lot of his deductions are business and real estate."

Bush's plan would cap most deductions at 2 percent of a taxpayer's AGI and eliminate other deductions, like those for state and local taxes paid. But some exemptions would be increased (at least the reduced exemptions for upper-middle and higher earners) so Bush would be able to claim the full $8,000 personal exemption for himself and his wife. Charitable donations,which amounted to 1.5 percent of Bush's AGI in 2013, would not be applied toward the 2 percent cap.

"We need to grow at a far faster rate than we are growing today," Bush told CNBC's Squawk Box. "This would stimulate higher growth. Combined with other initiatives, you could get to 4 percent growth."

"Under the Obama/Hillary/DNC tax plan Jeb pays 40 percent of his income to an incompetent federal government," the Bush spokesman wrote. "Jeb's answer is to get money back to families and put in place a strategy where the economy grows again."

Simplifying the tax code is a goal that most Americans seem to support, but choosing specific deductions to remove is far more challenging, each piece benefits some special interest or constituency, and in the end revenue has to come from somewhere.

"I would certainly agree that the tax code is very, very complicated," said Gagnon. "If the code is meant to be a revenue raiser, it only needs to be five pages long—but the code isn't really a revenue raiser, it's social policy."

Deductions like the state and local tax deductions help people who live and work in expensive cities, mortgage deductions incentivize home ownership, and the minimum alternative tax discourages the wealthy from loading up on deductions.

"I always see these proposals, but they don't really mean anything until you get it through Congress," said Gagnon. "People say: 'take away deductions from everyone else, but not me.'"