How to Win the Debate on Taxes
By Steve Hochstadt
TV commentators say Mitt Romney won the first presidential debate. He won it on taxes: "I don't have a $5 trillion tax cut … My number one principle is there will be no tax cut that adds to the deficit … I will not reduce the taxes paid by high-income Americans … I will not, under any circumstance raise taxes on middle-income families. I will lower taxes on middle-income families." Should we believe that?
Tax cuts for the wealthy are fundamental Republican economic dogma. Conservatives have made this policy the centerpiece of their economic theory: 1) the wealthy are job creators; 2) the more money they have, the more jobs they will create; 3) therefore lower their taxes. Which came first, the desire to enhance the household economies of rich Americans, or the theory that we all are better off when the rich get richer, is hard to say. They fit together so neatly.
Tax cuts for the poor do not fit into this economic theory. Republican proposals in the Senate and House, created mainly by Romney's VP selection, Paul Ryan, lower taxes on the wealthy in two whopping chunks: the top tax rate drops from 35% to 25%, and all taxes on capital gains disappear. The taxes paid by millions of low-income families would rise, because tax credits that help them are reduced, such as the Child Tax Credit, Earned Income Tax Credit, and American Opportunity Tax Credit.
Last year, Romney's "Believe in America" manifesto had no plan to reduce income tax rates. He supported the extension of George Bush's tax cuts for everyone. Lower income tax rates might be the subject of a future "fundamental reform". He did push a different tax reduction for the wealthy by eliminating the estate tax, benefitting individuals with estates worth more than $5 million.
Then in the January Republican debate in South Carolina, Romney said he wanted to reduce the top tax rate: "More than 25%, I think, is taking too much out of our pockets … 25 is where I would like to see us go."
In February, Romney said that he wanted to cut rates for all individuals by 20%, which would bring the top rate down to 28%. The cuts would be offset by reducing deductions, exemptions and credits for high earners, producing the same total revenue.
Romney did not explain how this could happen until April, when he proposed to eliminate the mortgage interest deduction for wealthy people who have second homes. "By virtue of doing that, we'll get the same tax revenue, but we'll have lower tax rates."
Of course, removing that deduction comes nowhere near balancing the 20% reduction in tax rates, so Romney has been repeatedly asked what other deductions he would eliminate, without any answer.
In August in Las Vegas, Romney was clear: "My tax policy will not reduce the taxes paid by high-income Americans." At the September Republican convention, he asserted, "I want to lower taxes on middle-income people." But he also said in Ohio that middle-class people would not pay lower taxes under his plan.
What Romney said about taxes during the debate is merely the latest version of his constantly changing proposals, still full of contradictions. Although the wealthy pay the same, and middle-class people pay less, "we keep taking in the same money, when you also account for growth." In fact, by eliminating the estate tax, the alternative minimum tax, and the Medicare surtax on high incomes, his plan significantly reduces taxes paid by the wealthy.
A bigger contradiction is that Romney has been claiming since April to get the benefits of a tax cut without it. In the debate with Obama he said, "And you think, well, then why lower the rates? And the reason is that because small business pays that individual rate … And if we lower that rate, they’ll be able to hire more people." This will happen just because the tax rate is lower, even if their tax bills are the same. That makes no sense.
In September the Congressional Research Service, working for the House and Senate, released a report on Taxes and the Economy. Their conclusion was "that changes over the past 65 years in the top marginal tax rate and the top capital gains tax rate do not appear correlated with economic growth … However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution."
Doesn't matter. Romney promised to create 12 million jobs in his first term. The Congressional Budget Office estimates that the normal processes of this recovery will create 12 million new jobs. He said that we could become energy independent under his plan, but earlier this year Citigroup said that would happen anyway by the end of the decade. Romney promises us nothing.
Romney's New Economic Policy won the debate. Maybe he'll be elected President. When a Republican-dominated Congress sends him the big tax cut for the wealthy that every Republican in Congress has been voting for, and that his Vice-President has staked his career on, what will President Romney do?
Will he veto it? I'd like to hear him say that.
But I still wouldn’t believe him.
Steve Hochstadt is a professor of history at Illinois College in Jacksonville, Illinois, and the author of Sources of the Holocaust (Palgrave, 2004) and Shanghai-Geschichten: Die jüdische Flucht nach China (Berlin: Hentrich und Hentrich, 2007). This article was originally published at L.A. Progressive.