Romney’s Tax Plan

A recent report from the Tax Policy Center is showing that the Romney tax plan will result in an added tax burden on folks with the lowest incomes:

Our major conclusion is that any revenue-neutral individual income tax change that incorporates the features Governor Romney has proposed would provide large tax cuts to high-income households, and increase the tax burdens on middle- and/or lower-income taxpayers.

I haven’t read all of the report nor have I taken much time to study the plan offered by the Governor.  However, the broad brush strokes seem to be that there would be a 20% reduction in the tax rate at all tax brackets.  Further, Romney would broaden the base by eliminating deductions.  Last, Romney claims that his policies would spark the economy into 4% growth as opposed to the anemic sub 2% that we’ve grown accustomed too.

It should be no secret that I’m a small tax small spend kinda guy.  So I’m a little concerned that the main thrust is surrounding tax rates and not spending rates.  Cutting taxes is fine, but unless we shrink government, we’re only left with larger deficits.

I’m also a big believer in the concept of the Laffer Curve.  This is the idea that tax rates of 0% and 100% will result in the same amount of tax revenue.  And that as tax rates increase from 0% more and more tax revenue will be generated until a peak is hit at which point any further increase in the tax rate will result in lower revenue.  I think this is true.  It’s important to emphasize the concept of both sides of the curve and I think that Romney may be forgetting the 0% side and arch of the philosophy.

I’m not so optimistic that we’re sitting on the exact right peak right now and that either a tax hike or a tax cut would reduce revenue.  But I think there might be better ways to spur the economy without introducing tax cuts.  For example, end this continued nonsense surrounding the extension of the Bush tax cuts.  Make ’em permanent and move on.  The taxes in Obamacare?  Remove them too.

Right now, I think that tax certainty would be a sufficient spark to the economy and one that could generate the 4% growth Romney is targeting.

I’ll leave the discussion with one caveat.  I think that we need to reduce our corporate tax so that we’re among the most competitive in the world in this space and not the worst in the world.  Further, I would edit the code to say that all earnings realized in a foreign nation and taxed at the national rate can be brought to America without being subject to further American corporate taxes.  It’s hard to defend the practice of taxing money earned in France, using French -ahem- roads and bridges and then taxing that money further for the construction of American roads and bridges.

17 responses to “Romney’s Tax Plan

  1. This is the closest he’s come to an actual policy proposal so far in this campaign. It was given a very generous interpretation by the group that studied it (they assumed he’d close all the loopholes for the wealthy first before proceeding down the pay scale) and it was still found to be an absolute disaster for the middle class.

    I don’t understand how a party can run a campaign on the behalf of the wealthiest americans, pick someone who is one of those weatlhy americans as its nominee, and expect to win 50% of the vote. 40% of the country would vote for Romney basically no matter what, but he’s not getting that remaining 10% with these types of proposals.

    • It was given a very generous interpretation by the group that studied it (they assumed he’d close all the loopholes for the wealthy first before proceeding down the pay scale) and it was still found to be an absolute disaster for the middle class.

      I think that what they did was run the analysis and come to the conclusion that you can’t reduce taxes at the margin AND remain revenue neutral. At that point they picked which way Romney would break. He could either miss his claim that he’d remain revenue neutral OR he’d have to raise taxes — somewhere. Not only did they decide that he would raise taxes but they also decided for him that he would raise those taxes on the lower income folks.

      And then we have the problem I spoke about earlier. If we have a group of people, those who earn less than 30k, who have a NEGATIVE income tax and we simply reduce or remove that payment are we really raising taxes? I would argue that it would have the same economic impact as a tax raise but I would call it more of a reduction in spending than a rise in taxes.

      However, the claim by Romney that he could cut taxes by 20% while closing loopholes isn’t unique to him. Obama’s Simpson-Bowles Commission suggested the same thing. With the result that revenue to GDP would increase to 20% and begin to reduce the deficit. Now, I suspect the devils in the details. What loopholes are we willing to close and which are we demanding remain? I’ll cede that based on that analysis Romney’s plan falls short of the promise to cut taxes and remain revenue neutral.

      One last thing, the least wealthy among us are not exactly being abused by those with the most wealth. From 2007-2009. the top quintile paid 94% of the federal income taxes. In fact, each of the bottom 2 quintiles paid negative taxes; so negative that in the aggregate the bottom 3 quintiles, fully 60% of the population, paid a negative rate.

      It might be time to put away the class warfare style attacks that the rich don’t pay their fair share and embrace reality that the rich, in essence, over fund the coffers.

      • He was the one who claimed it would be revenue neutral without explaining how. So they actually did him a favor. when they started looking for tax loopholes to close, they started with the ones that impact the wealthiest americans. They worked there way down through the payscale and found that in order to be revenue neutral the middle class would get slammed, no matter where you start.

        You’re also doing that thing again where you slip from talking about taxes to only talking about federal income taxes.

        • He was the one who claimed it would be revenue neutral without explaining how.

          Yes. You’re right.

          But he didn’t say that he would raise taxes on the middle class.

          They worked there way down through the payscale and found that in order to be revenue neutral the middle class would get slammed, no matter where you start.

          I think that a better conclusion would have been, “The plan as put forth by Romney cannot be revenue neutral. Additional tax revenues will have to come from some other source.”

          If, after review, Romney sees that his plan does not allow for revenues to remain neutral, he’ll have to decide to allow revenues to decline or raise taxes on some group of people. I don’t think it’s appropriate for the TPC to be allowed to decide both that revenues will remain neutral AND the taxes will come from the “middle class.”

          You’re also doing that thing again where you slip from talking about taxes to only talking about federal income taxes.

          We’re mainly dealing with federal income taxes. The CBO breaks out 4 types of taxes, federal income, social insurance, corporate and excise. All 4 are progressive with only excise mildly so. Social insurance in second, but still pretty progressive. I haven’t heard anyone talking about the excise or the social insurance taxes.

          As far as I know, its almost all federal income rate reduction and deductions from that income tax. And, of course, the corporate tax.

          Neither Romney nor Obama influence such things as sales tax, property tax or state income tax. So, while it’s important to look at the tax burden in the whole, this discussion is almost exclusively related to federal income tax.

  2. The claim the rich overfund the coffers isn’t true. Our very rich – top 1-5%, pay the least relative taxes of any group in the industrialized West. Our taxes do the least of any country in the industrialized West to even out income disparities. The very wealthy have benefited from debt and deficit spending during booms which allowed their wealth to grow dramatically – that’s one reason they need to pay back, they are the recipients of government largesse on many levels. They’ve shaped the tax code, they’ve benefited from high debt, and corporate welfare/de-regulation made it easier to make large amounts of money. If that isn’t fixed, our economy cannot recover. Without a well regulated economy that protects the middle class, we’ll lose out on the progress made after WWII to work away from a small wealthy elite and a huge working class/underclass towards a strong middle class as a backbone of a new opportunity economy. If that happens, our children — and the country — face a bleaker future.

    • The claim the rich overfund the coffers isn’t true.

      You’re being disingenuous and holding onto dogma Scott.

      Our very rich – top 1-5%, pay the least relative taxes of any group in the industrialized West.

      The top20%, the top quintile, pay 94% of the federal income tax. You can not seriously make a case that they need to pay more. And the bottom 3 quintiles–fully 60% of America? They bottom 3 quintiles pay -7.4% income tax

      Your guilty few, the top 5%? They pay 63.9% of all federal income tax.

      You simply have to be suspend reality if you think that the wealthy aren’t paying “their fair share.”

      Our taxes do the least of any country in the industrialized West to even out income disparities.

      I’ve posted on it before, I’ll have to visit it again, but I’m not convinced that studies showing income disparities take into account the whole picture; total compensation.

      They’ve shaped the tax code

      What percentage do you think the wealthy should pay? Here’s the breakdown:

      Bottom Quintile : -6.6%
      Second Quintile: -3.5%
      Third Quintile: 2.7%
      Fourth Quintile: 13.4%
      Top Quintile: 94.1

      First, how does that data offend your sensibilities regarding the poorest among us? Second, in which way and manner would you change that to make it more “fair?”

      Without a well regulated economy that protects the middle class

      Can you define the Middle Class for me?

      • Our wealthy are taxed at lower rates than the wealthy of any other advanced industrialized country. You have to look at the percentage they pay relative to their income; investment income is taxed at only15%, and that’s about 75% of the income of the very wealthy. They have benefited the most from the system so they should pay the most, especially when many people struggle, don’t have health care, and lack opportunity.

        But it’s for the voters to decide. Politically here’s a reality: you won’t get entitlement reform and major spending cuts without increasing taxes on the wealthy. All your abstract arguments are irrelevant, the reality is it won’t happen. Also, the very wealthy will even after tax increases be taxed less than the wealthy anywhere else, and it will not cramp their life style. It may help avoid catastrophe for working class poor.

        You seem to think that because they can get money in the market it’s just that they have it, even if it has bad social consequences. I find that proposition untenable. Moreover, income inequality has been increasing dramatically. Between 1979 and 2004, the mean after-tax income of the top percentile increased 167%, versus 69% for the top quintile overall, 29% for the fourth quintile, 21% for the middle quintile, 17% for the second quintile and 6% for the bottom quintile (source: Wikipedia). But let each side make their case and the voters can decide. Zealots demand their side wing completely. Pragmatists compromise.

        • Our wealthy are taxed at lower rates than the wealthy of any other advanced industrialized country. You have to look at the percentage they pay relative to their income; investment income is taxed at only15%, and that’s about 75% of the income of the very wealthy.

          Scott. 94%.

          The top quintile pays 94% of the federal income taxes.

          But it’s for the voters to decide.

          Indeed. When 60% of our citizens, in aggregate, are supported, not by their own merit but by the largess of the rich, it will not surprise anyone who those 60% will vote for.

          But let each side make their case and the voters can decide. Zealots demand their side wing completely. Pragmatists compromise.

          I don’t see 94% of all federal incomes being paid y the top quintile as a zealot’s choice. And for “rigging the system” they haven’t done very well either.

  3. Pino ,

    You will never persuade a zealot of anything, not even that he is a zealot .

  4. When 60% of our citizens, in aggregate, are supported, not by their own merit but by the largess of the rich

    Hmmm….been thinking of what I said for a bit now; I don’t think I like it.

    There are a ton of folks who labor nobly everyday that are somewhere in those three quintiles. They may be folks starting out their career, in school, between jobs or at the end of their career. Further, there are folks who value money less and simply choose a job that offers them compensation in other areas; flexibility, honorable work or fewer hours.

    I don’t wanna imply that they aren’t where they are because of their own hard work.

    I spoke out of frustration in response to so much of the class divisions being employed by the democrats.

  5. I have kids in their 20s who are now out of college . I have relatives, friends, and co workers who have kids in the same boat . We all know that the Obama economy is very bad. The Democrats answer is more class warfare and more senseless regulation . I suppose no Democrats here have any children in this age bracket . They couldn’t and still support the guy who has been in charge the last few years . Will class warfare get your kid a job ?

    How’s that class warfare been working for 3 1\2 years ? Unemployment over 8 %. How’s that financial regulation working out ? It sure did not stop Jon Corzine and MF Global from losing a billion and a half and going under . I mean , Jon Corzine the Democrat .

    If class warfare worked I would be the greenest, the biggest hate the rich, sign carrying wall street occupyer around . Just out of self interest , but It never works .

    We tried class warfare and regulation and it did not work . It is time to put Obama-nomics into the dust bin of history with Carternomics .

    • Will class warfare get your kid a job ?

      We’re trying a intern program at work. The bosses were all talking about how much we should pay. I suggested that we start at $0.00 an hour. The work experience and resume they’ll build will be invaluable. Further, if they do well, we’ll hire ’em.

      Predictably I got class warfared out of the room.

      Later in the week I’m chattin’ up some of the bosses. One of his kids is graduating soon and is looking to land a job at a company in the area. He’d “give anything” to help give his kid a leg up. I said, “even work a 3 month internship for free?” He nodded enthusiastically and then realized he’d just been “mated.”

      How’s that class warfare been working for 3 1\2 years ? Unemployment over 8 %.

      Yup. It’s not working. He knows it’s not working and 3 years ago he said that if it didn’t work this would be a one term proposition. I for one, wanna take him up on the offer.

  6. Actually I think the GOP’s rhetoric and approach has been class warfare. Voter suppression, dissing the poor, supporting advantages for the wealthy. If it’s class warfare, it’s been started by the right.

    • Voter suppression,

      No votes are being suppressed. Just asking for the same form of ID that you would need to cash a check, rent a movie or buy Sudafed.

      dissing the poor

      The poor are net receivers. How are they being dissed?

      supporting advantages for the wealthy

      The advantages include paying 94% of the federal income taxes.

  7. The poor are dissed when they are treated like they are leaches or that they deserve to be suffering while others have had their wealth skyrocket. It’s a weird “the rich deserve whatever they can get and the poor deserve to be poor” attitude that neglects the real life experiences of the poor. I’m not sure if the 94% number is right or not, but that’s not relevant. It only shows just how poor the middle class and poor are if, given our tax structure, that’s the result — especially when our wealthy are taxed less than any other industrialized state’s wealthy! The game is rigged for the wealthy elite, who benefited greatly from high debt over the years and government policy, and now they don’t want to pay a little more in taxes and want the budget balanced by cuts borne by those who are struggling? Maybe tax warfare has been waged on the poor and middle class, and they need to fight back!

    • The poor are dissed when they are treated like they are leaches

      We teach our kids not to take money from other people. I remember when I was a kid I’d draw pictures and sell ’em to the neighbors for a quarter. It didn’t end well when dad found out. He knew those folks were just giving me money. We constantly talk to our kids about working hard, discipline and making a good living.

      It’s not controversial when we say we don’t want people taking money from the government. We don’t.

      they deserve to be suffering while others have had their wealth skyrocket.

      Except no one says that ever.

      It’s a weird “the rich deserve whatever they can get and the poor deserve to be poor” attitude that neglects the real life experiences of the poor.

      We each deserve to get what we get. Look at all the conditions the wealthy display; hours worked, years of education, degrees, prison time….all of it trends in harder work pays off in terms of money.

      It only shows just how poor the middle class and poor are if, given our tax structure, that’s the result — especially when our wealthy are taxed less than any other industrialized state’s wealthy!

      I would challenge you to find another nation that taxes it’s wealthy such tha they contribute 94% of the income taxes.

      Maybe tax warfare has been waged on the poor and middle class, and they need to fight back!

      It would be difficult to argue that the poor are losing the tax battle.

      The economy fell into the largest crisis since the Depression in 2008, due to thirty years of growing imbalances and government deregulation that allowed the big banks to perpetrate a very damaging bubble on the economy.

      There may or may not be an element to that. But the economy crashed due to the banks being over extended. THAT came as a result of being forced to make too many bad loans AND switching to the new mark to market accounting rule.

      To blame that on Obama,

      To be true, it’s not Obama that caused the mess; though he did his part while in the senate.

      to think anyone could “fix” that in four years (it’s global, after all) is unrealistic.

      How about just not making it worse?

  8. The economy fell into the largest crisis since the Depression in 2008, due to thirty years of growing imbalances and government deregulation that allowed the big banks to perpetrate a very damaging bubble on the economy. To blame that on Obama, or to think anyone could “fix” that in four years (it’s global, after all) is unrealistic.

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