With only a few weeks to go in this election, it’s time to put-up or shut-up. We must have all the salient details disclosed by those seeking office if we are to make the most informed choices possible. If we are to understand how they might impact our economy in 2013, we need to fully analyze their tax plans and how they will specifically impact tax-rates and future tax-deductions.
I can’t think of a more reasonable request of our future elected officials.
[Update: Here is a link to a great resource which details all 172 tax deductions. http://www.washingtonpost.com/wp-srv/special/politics/tax-code-break-by-break/ ]
The value of the top 25 deductions for corporations, investors and business interests is approximately $460 billion or nearly 42% of the total value of all available tax deductions, tax credits and tax loopholes -($1.1 trillion).
The value of the top 25 deductions for individuals is approximately $593 billion or nearly 55% of the total value of all available tax deductions, tax credits and tax loopholes -($1.1 trillion).
I have the details and breakdown of the top 50 deductions in an earlier post called “Tax Loopholes …”. so you can refer to that long list of items there.
Ok my friends, you now have the exact same data the politicians have. You can now decide exactly what tax deductions to keep and what to cut. You may have heard the Governor has already stated he will not cut Mortgage deductions, employer healthcare deductions or charitable contributions. You may have also heard about a limited deduction bucket of $17k, $20k, and even $50k. This idea is not in writing anywhere in the Governor’s tax plan so it is nothing to be taken seriously at this point. Only when he settles on a real number in the bucket can anyone evaluate whether the bucket is big enough to work.
Governor Romney has a plan to cut taxes by 20% ($4.8-$5 trillion); increase budgeted Pentagon spending by $2 trillion, and continue the lower Bush/Obama tax cuts for everyone ($trillion). He says he will balance the budget in 4 years and eliminate the deficit by the end of his term. His plan starts with a cost of $7-8 billion over a 10 year period. If every tax deduction is eliminated – every single tax deduction – the value of those deductions would be around $10-$11 trillion over a10 year period.
There is no reason an experienced businessman and former Governor with the current House Budget Chairman as his Vice Presidential running mate CAN’T show how they developed their math. There is only reason they refuse to give you their straight story; they know exactly how they want to do it but they know 50.01% of voters will not like nor will it ever get done.
The Federal Government’s budgeting process is very well understood. The Congressional Budget Office has been scoring budgets for decades. There are a number of ways to get credit for savings:
A). Slowing previously budgeted growth in spending and eliminating spending all-together
B). Cutting or eliminating tax deductions, credits or loopholes.
C). Reducing growth related to interest or inflation.
There are also a number of ways to generate revenue in order to pay for the functions of Government and the administration of our country:
D). Collection of taxes and fees
E). Tariffs and Trade related income
F). Revenue from performing assets and reimbursement of US expenses
In order for Governor Romney’s tax plan to work, he will need to specifically identify 4 things:
1). The true value of his reductions in revenue
2). The true value of any increases in spending
3). The specific tax deductions he is eliminating and a one-for-one Assoiciation to the cuts in revenue
4). Some specific plan for how he can receive support from 60 Senators and a majority in the House
5). How he can violate supply-side economics and still achieve economic growth.
6. How his plan can guarantee 12 million net new jobs and produce 4% GDP growth.
I mention item 5 & 6 because this is where I get totally lost when studying the Gov’s tax plan.
The Governor has stated on a number of very public occasions the following:
“The wealthy will not receive any tax-cuts”. “They will pay the same taxes they pay today”. They pay 60% of taxes today and will pay the same percentage under my tax plan”.
If these statements are truly what Romney believes and what his plan actually calls for, his plan can not work. Why? It violates the concept of supply-side economics and the theory of trickle-down growth policy.
For decades, it has been considered a near-religious fact that if you cut taxes for high-earners, they will take their excess income and drive it back into the economy through increased investments, business expansion, and jump-starting commerce specifically in the United States. President Reagan embraced this concept as did President Bush. Governor Romney has always supported the concept of getting tax-cuts into the hands of the job-creators, the wealthy entrepreneur, and investors. Those that believe in the concept of lower taxes to create economic growth have a long history of advocacy.
Cleaning up the tax code in a way that is still revenue-neutral is a waste of time since it does not create any new wealth or any new revenue. As a matter of fact, it not only does nothing for new revenue, the tax payer does not save a dime either.
WHAT’S THE POINT OF A REVENUE-NEUTRAL TAX PLAN?
A CUT IN RATE THAT DOES NOT RESULT IN A CUT IN TAXES IS SILLY AND MAKES NO SENSE?
If Governor Romney is telling the truth and he will not give the wealthiest among us a single dime …. a single dollar of net tax-cuts, how does he get the growth necessary to keep his budget in balance. In other words, if the economy needs the job-creators to have more net revenue that would come from a tax-cut and the Governor’s tax plan is specifically designed to produce no cut in the taxes paid, how does this create more economic growth?
My theory: High-earners will receive a tax-cut under the Romney plan because it is the only logical way for a true supply-side tax plan to actually function according to supporters of the concept. The true-believers will never agree to a plan that does not result in a real and tangible tax-cut.
Just look at the actual votes in the House and Senate. At the end of the day, the currently elected officials want tax-cuts that result in extra money in the pockets of Americans. No elected official has voted in over 12 years for a tax-cut that does not put extra cash in the hands of Americans. Governor Romney is too intelligent to believe his signature tax plan has the votes to be 100% neutral for high-earners.
Hell, why does he thing they are funding his campaign if not for a real cut in taxes and extra money in their pockets via a net-net tax-cut?
As I said, his plan has to include a real net-tax-cut for high-earners and they all know this to be true. Claiming otherwise is simply Bigfoot Riding A Unicorn!
See if you can find another plausible answer.