September 25, 2012 by David K. Sutton
Mitt Romney’s Tax Plan Is Intentionally Short On Specifics
Mitt Romney is not offering many details when it comes to his tax plan. He and Paul Ryan want you to trust them on the specifics. That’s for after the election, according to team-Romney. Here’s the 10,000 foot view on Romney’s tax plan for individuals according to MittRomney.com:
Reducing and stabilizing federal spending is essential, but breathing life into the present anemic recovery will also require fixing the nation’s tax code to focus on jobs and growth. To repair the nation’s tax code, marginal rates must be brought down to stimulate entrepreneurship, job creation, and investment, while still raising the revenue needed to fund a smaller, smarter, simpler government. The principle of fairness must be preserved in federal tax and spending policy.
America’s individual tax code applies relatively high marginal tax rates on a narrow tax base. Those high rates discourage work and entrepreneurship, as well as savings and investment. With 54 percent of private sector workers employed outside of corporations, individual rates also define the incentives for job-creating businesses. Lower marginal tax rates secure for all Americans the economic gains from tax reform.
- Make permanent, across-the-board 20 percent cut in marginal rates
- Maintain current tax rates on interest, dividends, and capital gains
- Eliminate taxes for taxpayers with AGI below $200,000 on interest, dividends, and capital gains
- Eliminate the Death Tax
- Repeal the Alternative Minimum Tax (AMT)
Unfortunately the above is also the microscopic view. — That’s it! That’s the entire plan. In fact, I was about to say that each of those bullet points are linked to some additional detail but they aren’t!
In this plan, if you can call it that, we are told that bringing down marginal tax rates is a “must,” but we are not told why. We need to trust that lower taxes for everyone, including the wealthy, will lead to economic stimulus. Nevermind that taxes have been lowered several times over the past decade (Bush and Obama) without much economic growth to show for it. That tax cuts aren’t the best way to stimulate the economy, and even Republicans knew this not that long ago, is completely absent from this discussion. But I digress, because this article’s intent is to focus on Romney’s “tax plan.”
Before we go any further, we need some context. — The yearly federal deficit (since the “Great Recession”) has been well north of one trillion (around $1.3-$1.4 trillion). I’m citing this from memory, so I could be slightly off, but I believe over 80% of the current budget deficit is due to tax cuts, Medicare Part D, two wars and the effects of the Great Recession (stimulus spending, lower tax revenue). Feel free to correct that percentage in the comments. The exact number is immaterial, that most of the deficit is made up of the above list of items (and that taxes are one of those items) is what matters.
If tax cuts and reduced tax revenue make up part of the federal budget deficit (and Mitt Romney and Paul Ryan say that the deficit and debt are important issues), then why do they explode the deficit and debt by cutting taxes by $3.4 trillion over the next decade? This is according to a Wall Street Journal article in March which cited a study by the non-partisan Tax Policy Center. Other publications have cited $5 trillion, but I’ll give the Romney camp the benefit of the doubt.
OK, so you might be asking, if Romney doesn’t offer details then how can we come up with such numbers? The reason is Romney has told us how much he plans to cut taxes (20% across-the-board), but he has not told us how he intends to close loopholes, something he says he will do. And that’s where the details matter. Because it is impossible to close the budget deficit gap by lowering tax rates unless you plan to even out that rate reduction with a streamlining of the tax code that eliminates some or all the deductions that many Americans take advantage of. Oh, and it also requires massive spending cuts, but that’s for another article.
When we hear about tax loopholes, we assume it’s only a perk of wealthy elites, but a tax loophole is any mechanism in the tax code that allows one to deduct from his or her tax liability. For example, the home mortgage interest deduction. If you own a home and that home has a mortgage, you are able to deduct each year’s mortgage interest, reducing your taxable income. For Mitt Romney to be able to cut taxes by trillions over a decade (AND) reduce (or eliminate) the federal deficit, it will require some or all of these loopholes (including the mortgage interest deduction) to be eliminated. This means it’s not exactly out of line when people say Mitt Romney wants to raise your taxes to lower his taxes.
See, for many Americans, if they lose the mortgage interest deduction, that will more than make up for the 20% reduction in their federal income tax rate. This is especially true since payroll taxes – not federal income taxes – represent the biggest portion of the tax pie for many Americans. By eliminating the mortgage interest deduction, that could easily mean an increased tax burden of $2,000 or more for the average home owner, especially home owners who are in the first 10 years of a 30 year mortgage.
This is why the details matter. If you take advantage of any tax deduction like the mortgage interest deduction, and if you are planning to vote for Mitt Romney, are you ok with just “trusting” team Romney to figure it all out after the election? / photo by Gage Skidmore