Do Not Believe Romney or GOP Will Lower Your Taxes

I don’t have any way of knowing whether or not you believe Mitt Romney will lower your taxes, but there is no way in hell that I believe he will lower my taxes. Despite being a white, southern, working-class, male voter, Mitt Romney really only has one thing to offer me in exchange for my vote; lowering my tax rate so that it’s somewhere close to the 14.1 percent he paid in 2011. He says he would. The problem is that he has promised a great number of things, most of which directly contradict what he has promised someone else. Down here in the deep red south, we call that a lie.

I’m from one of those states where Mr. Romney thought we’d all vote for him because someone on his campaign staff told him to say “cheesy grits” during a brief stop-over he made here. To that I say:

1)     I could care less if Mitt Romney has ever tried grits

2)      He’s wrong, I wouldn’t vote for him. I would not vote for Mr. Romney if doing so would grant me three wishes from a genie. Frankly Mr. Romney, I don’t give a damn what you say–because I don’t believe a single word that comes out of your mouth.  

As Romney tries to project a benevolent, more genteel image to voters, we’ve heard a lot about how regular families will benefit from his policies. A central part of his latest extreme image makeover is his proposal to cut tax rates by 20%. As with all his other impossible mathematics, Romney has also promised that his tax reforms will be revenue neutral. This means the government, in total, will take no more from American taxpayers than is being taken now but will magically give everyone a tax cut and he’ll increase military spending and he’ll reduce the deficit.

Wow. Just to illustrate how bizarre those claims are, if I applied that same logic to my personal finances, I could:

1)     Take a part-time job making 20% less than I make now

2)     Put in a brand new state-of-the-art security system with 24/7 private guards and anti-trespassing drone missiles

3)     Not have to borrow any money for the above, and still have money to

4)     Reduce the amount of debt that I already owe to others for past projects

Mr. Romney, I have to hand it to you. You sir are a financial Mr. Wizard!!

Wait. Doesn’t that mean that for Mr. Romney’s claims to be true, someone else would have to pay for all those shortfalls above on my behalf?

You betcha. That’s exactly what it means. Either that or 1) Mr. Romney is lying again, or 2) the laws of mathematics no longer apply in this world. Romney’s proposal is a standard assertion among conservative budget wonks: “Lower the rates, broaden the base. Everybody wins.”

In other words, he plans to take a smaller share of each dollar of income, but make more of that income taxable. I suppose he could achieve that by severely limiting or eliminating traditional income tax deductions such as those for mortgage interest, retirement savings, charitable contributions, and childcare credits.

Traditional Argument

The traditional Republican argument for tax cuts is that people will work more, and hence boost the economy, if marginal rates are lower. Specifically, if people get to keep a larger share of each extra dollar they earn. In the bizarre version of this story, made popular when marginal tax rates were as high as 70 percent, cuts might lead people to work so much more that the government keeps receiving just as much revenue from them as it would have with the higher rates.

The Republican enthusiasm for tax cuts, however, doesn’t apply to Romney’s reform. His plan tinkers with statutory tax rates (the rates written in the law), while the loss of deductions will probably not change the marginal effective rates (the share of each extra dollar in income we actually pay). This point has been made vociferously by Alex Brill and Alan Viard,( both economists at the right-leaning American Enterprise Institute) who wrote that lowering statutory tax rates while broadening the income tax base generally does not increase work incentives because it leaves the relevant effective tax rates unchanged.

Moreover, actual effects would be extremely transformative and deleterious for individual families. As it stands now, if you buy a better health-care plan or a bigger house or if you put more of your money in an IRA, the dollars you spend on these items reduce your taxable income allowing you to recoup some, if not most, of your investment. If Romney reduces or eliminates any of these deductions, families that depend on them heavily to own homes or defer money for retirement (most likely the middle class) could end up with a higher marginal tax burden, while families that never used them (i.e., single, renters) could be taxed less. This might give some a stronger incentive to work, but it might also give others a weaker incentive.

The truth is, no one really knows the implications for your family or my family, because Romney has refused to specifically say what the base-broadening changes would be that would offset the lower statutory rates. Virtually everyone, including many within his own party, has asked for more specifics from Romney on his tax plan, but to no avail. For all that Republicans publicly proclaim to abhor redistributions; Mr. Romney is proposing a large-scale redistribution of income without saying who will gain and who will lose. In such an ambiguous situation, it’s logical for a cautious voter to assume the worst.

Discriminatory Incentives

I think many would agree that reforming our tax system remains an important priority. And expanding the tax base is central to many proposals, including those of the Simpson-Bowles deficit reduction commission, the Domenici-Rivlin debt reduction task force and President Barack Obama included. The logic of these reforms is that, whether or not we want to raise more revenue, we should eliminate the persistent preferences within our tax code ( i.e., rewarding people for taking on debt to buy a house). Eliminating deductions would inherently eliminate the distortions and preferential treatments.

Mr. Romney’s underlying principle for tax reform seems to be based on a more condescending political logic. He is publicly campaigning on the parts of his plan that would lower voters’ tax burden, while hoping they’ll overlook or misinterpret the equivalent and reverse parts that will raise that same tax burden.

To be blunt, Mr. Romney is again lying. He is clearly not planning to cut taxes at all; at least not for the middle class.

Harvey Gold

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