The Many Tax Plans of Mitt Romney

Math is pretty important these days. If you’ve been watching the presidential debates, you’ve probably felt like the candidates should use a chalkboard to explain their disagreement on taxes. The numbers have been flying, and many Americans are confused.

I’m here to help. This is a tutorial on the many tax plans of Mitt Romney.

Don’t be scared. As Bill Clinton said, it’s just arithmetic.

Earlier this year, Romney announced his first tax plan. His big idea was to reduce individual income tax rates by 20 percent in addition to extending all the Bush tax cuts permanently.

So, instead of paying 10 percent, the bottom tax bracket would pay 8 percent. Instead of paying 15 percent, the next tax bracket would pay 12 percent. And so on.

But 20 percent of 35 is a lot bigger than 20 percent of 10, so high-income taxpayers would get a much bigger tax cut.

Romney also proposed cutting the corporate income tax, eliminating the estate tax, and eliminating the tax on investment income for folks earning less than $200,000.

Under this plan, the top 0.1 percent of households would get an average tax cut of $725,716, while the middle class would get $810 apiece.

But there’s a problem with this plan. It would decrease tax revenue and increase the budget deficit by $456 billion in 2015. That would almost double what our deficit is projected to be at that time.

So Mitt Romney came up with a new plan. After he cut taxes by $456 billion, he’d raise them by $456 billion.

If that sounds like a waste of time, you’re not thinking like a politician. This way, he could campaign on a huge tax cut and, at the same time, vow to reduce the budget deficit. He just wouldn’t tell people he won’t actually be cutting their taxes. Because he can’t. Not unless he wants to increase the budget deficit.

Here’s how he’d do it. After he lowered everyone’s tax rates, he’d eliminate enough deductions and tax credits to make up for all that lost tax revenue.

So, you can say goodbye to the child tax credit, the education tax credit, the charitable-donation deduction, the mortgage-interest deduction, etc, etc. I’m just making this up because Romney never specified which deductions and credits he’d eliminate. And that’s kind of important, right? He’s proposing a radical restructuring of the tax code that could have a huge effect on you, and he refuses — again and again and again — to give any details. But suffice it to say, if you benefit from any of those deductions or credits, you should be worried.

Now he’s got a new problem. For high-income households, there aren’t enough deductions and credits to make up for the massive tax cuts they’d enjoy under Romney’s plan. Even if he got rid of all those deductions and credits, they’d still get a tax cut.

If this plan isn’t going to increase the deficit and high-income households are getting a tax cut, then everyone else is getting a tax increase. In this scenario, the middle class would pay an average of $899 more in taxes, while the top 0.1 percent of households would pay $246,652 less.

So Mitt Romney came up with a new plan. Again.

In this week’s debate, Romney proposed putting a cap on itemized deductions. In this scenario, each household could use only $25,000 in itemized deductions.

Since high-income households are more likely to use more than $25,000 in itemized deductions, this plan would hit them harder. So Romney can say he’s taken the burden off the middle class.

But wait. Yep, you guessed it: There’s a problem. Again.

This plan would only raise $103 billion in 2015. If Romney keeps his promise to cut tax rates, he’d be increasing the budget deficit by $353 billion.

No matter how hard he tries, Mitt Romney can’t avoid arithmetic: Cutting taxes increases the budget deficit.

That’s why the last three Republican presidents each presided over massive increases in federal debt. That’s why Dick Cheney said, “Deficits don’t matter.” And that’s why Mitt Romney’s numbers don’t add up.

But don’t worry. I’m sure he’ll change his mind again.


This op-ed was published in today’s South Florida Sun-Sentinel.

Putting the Spotlight on the Covert Subsidy of Wall Street

Wall Street is back in the news.

They went away for awhile, taking a backseat to gas prices and budget proposals. They preferred it that way. They make more money when no one’s paying attention.

But when you’re too big to fail, you’re too big to hide.

First, there was the announcement that JP Morgan had lost at least $2 billion in derivatives trading. Then came the Obama campaign’s attacks on Mitt Romney’s record of cutting jobs at Bain Capital, followed by the unlikely retort by Cory Booker, the Democratic Mayor of Newark, New Jersey.

But it is not enough to ask what good Wall Street does. We must go one step further: Is Wall Street so valuable — is its output so beneficial — that we must subsidize it?

In the wake of the worst financial crisis since the Great Depression, it’s hard to make that case. But that hasn’t stopped the government from giving Wall Street a bonus on top of every dollar they earn.

They don’t call it a “bonus,” but that’s what it is. Wall Street pays a lower tax rate — 15 percent — on every investment it cashes in than it would pay if that money were taxed like ordinary income. This “capital gains tax rate” is the lowest it’s been since the Great Depression.

When George W. Bush got Congress to lower this rate from 20 percent to 15 percent in 2003, it was supposed to encourage people to save and invest more, thus increasing future economic growth.

But nothing of the sort happened.

“I have worked with investors for 60 years,” said Warren Buffet, “and I have yet to see anyone — not even when capital gains rates were 39.9 percent in 1976-77 — shy away from a sensible investment because of the tax rate on the potential gain.”

Capital gains taxes have been falling for twenty years, from 28 percent in 1987 to 15 percent in 2007, yet the saving rate has plummeted over those same years.

In fact, the years following the 2003 tax cut were part of the most dismal economic expansion in postwar history. Output growth, job creation, poverty reduction, and investment were all below average, if not all-time lows.

Clearly, low capital gains taxes did not lead to the prosperity that was promised.

This conclusion isn’t restricted to one decade. From 1950 to 2011, the capital gains tax rate has been positively correlated with economic growth, meaning higher taxes have been associated with faster growth. Even when you compare economic growth occurring several years after the tax rate changed, there’s still no significant negative relationship.

Yet this tax break persists, costing the government $100 billion every year (when combined with the loss from the same low tax rate applied to corporate dividends).

Where does this $100 billion go?

$70 billion of it goes to the richest 5 percent of households. Half of all capital gains income goes to the top 0.1 percent of households. That means that a mere 114,000 households receive a $50 billion subsidy from the government every year.

And it would be so easy to fix. Here’s how it would work…

If you’re in the bottom 20 percent, you’d pay an extra $1.

That’s right. Just one dollar.

If you’re in the next 20 percent, you’d pay $2. Seriously. Only two dollars.

If you’re in the middle 20 percent, you’d pay $6. That’s it. The average American, the precious middle class, would pay only six more dollars.

If you’re in the next 20 percent, you’d pay $30. On a six-figure salary, I think you can afford to give up thirty bucks.

And those are just the average tax increases. Of those bottom 80 percent of households, 9 in 10 would experience no tax increase whatsoever.

Cory Booker says this debate is a “distraction,” but nothing could be further from the truth — $100 billion is too big to ignore. The spotlight is back where it belongs. This time, let’s keep it there.


This op-ed was published in yesterday’s South Florida Sun-Sentinel.

The Tax Cut That Never Was

Finally! Prof. Mishra has offered some evidence to support his argument. Granted, it’s not accurate evidence, but at least he’s trying.

Here’s the example that Prof. Mishra thinks is evidence of tax cuts increasing tax revenue:

Indeed, in 1986, when President Reagan lowered the top tax bracket from 50 percent to 28 percent, it led to an enormous rise in federal tax revenues as well as a great expansion in small business and entrepreneurial activities, leading to more job creation and economic growth.

Well, that’s one way to rewrite history.

As I’ve said over and over, the business cycle that Reagan presided over experienced the exact same economic growth — 3 percent per year — as the one overseen by Nixon, Ford, and Carter. And since tax cuts supposedly increase tax revenues by increasing economic growth, the entire argument falls apart because they didn’t increase economic growth.

But what makes Prof. Mishra’s example really embarrassing is that the Tax Reform Act of 1986 was a tax increase, not a tax cut! Continue reading “The Tax Cut That Never Was”