How to Win the Debate on Taxes


Posted on 12 October 2012

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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.

"tax cuts for the poor"? They don't pay any federal income tax. In fact, many of them get income tax credits, payments instead of taxes.

Under Obama, federal spending has gone to 24% of the GDP. Total government spending, at all levels, has exceeded 42%. And, you want more taxes?

If you had your way the elderly and truly indigent would be eating dog food as they were during the Reagan administration. History judges societies on how they treat(ed) their aged and the needy, and I am ashamed of how we treat the poor in this country, especially our "Greatest Generation EVER". The generation that is now our aged population who fought in World War II to ensure that we could pursue the computer age and have the opportunity of plenty that this current generation enjoys. If you want a society without government and support for our needy...move to Somalia.

The problem is not that we are not taxed enough, it is that the government spends more than it should.

Move to Somalia. I am happy with funding a government that protects my freedoms and helps the poor. I (of course) agree that there is waste and need for stronger scrutiny, much like the scrutiny that Obama's administration placed on Medicare and issued 91 charges of fraud, etc. against the medicare providers last month that were defrauding our system and scamming our government for money they did not deserve. Additionally, Romney thinks we should give the $716B back to the Medicare providers that Obama reduced the cost of to force them to be more efficient and spend their monies on healthcare, not waste. The bottom-line though is that if you don't like government spending, there are many countries where you can try that concept out, and they probably don't even have a border patrol, so easy-pickins.

Move to Somalia. I am happy with funding a government that protects my freedoms and helps the poor. I (of course) agree that there is waste and need for stronger scrutiny, much like the scrutiny that Obama's administration placed on Medicare and issued 91 charges of fraud, etc. against the medicare providers last month that were defrauding our system and scamming our government for money they did not deserve. Additionally, Romney thinks we should give the $716B back to the Medicare providers that Obama reduced the cost of to force them to be more efficient and spend their monies on healthcare, not waste. The bottom-line though is that if you don't like government spending, there are many countries where you can try that concept out, and they probably don't even have a border patrol, so easy-pickins.

It would be great if the federal government -as well as all other tax receiving entities-- would adopt zero-based budgets. I.e. Begin with zero for all programs, then restore piece by piece each item that is absolutely necessary, figure out costs, then raise taxes for that amount.Begin with military which now takes up over 50% of the discrectionary budget. All spending must be looked at; even Big Bird. People make fun of Romney to suggest to get rid of Big Bird--they say it's only a few million...but every million counts.

Makes no sense to throw the baby out with the bathwater. We all want to reduce waste and abuse a zero-based restart is not feasible and would hurt many needy Americans nation-wide.

The only jobs the ultra rich create are for personal services and luxury goods. And, since most of the luxury goods are made overseas, here in the US of A we have jobs for masseuses, hairdressers, personal assistants, butlers, chauffeurs, nannies, yard and pool maintenance, dog walkers and groomers, party planners, housekeepers, manicurists, stylists, personal chefs. Yeah, lots of great jobs.

Real job creation occurs when the economy overall has a growth spurt, which is usually nowadays caused by consumer confidence, due to increased disposable income, resulting in increased spending. During such a spurt, ALL businesses tend to expand and grow to meet new demand. Small businesses do create jobs, but not anywhere near the numbers created by large businesses, industries, and manufacturing firms. Auto industry, software companies, medical industries, for example, can add hundreds of thousands of jobs, while small businesses may add five or ten. And, there aren't enough small businesses to make up the scale. That's why Obama helped out the auto industry and the energy industry- they employ lots of people and can more easily and quickly expand to hire lots more.

Let's also recall that Romney considers those making %250K or more per year as "middle class."

As for the argument that government spends too much, that is so simplistic that if I weren't a polite person I'd call it stupid. But I actually agree- let's see, the war on Iraq cost us about a trillion dollars. That would pay for a brand new, free home for about 16 million people; completely rebuild New Orleans; hire 700K new cops and cover their salaries and pensions for 16 years; fund 50 million new business startups at $20K each; give every living person in the USA $3,500 dollars; help pay for the Bush tax cuts and about half of the debt incurred from them; power 75 million homes with solar power; pay for the college education of this entire generation of HS grads; hire 1.9 million new teachers; clean up and revitalize 670 polluted rivers; and more.

But somehow, the folks making that argument, I don't think that's what they are thinking. They are thinking of some fanciful nonexistent creature: the welfare mom, the teacher with a fat pension, the lazy homeless person, all those takers sucking on the government teat.

perhaps too much on government spending, so that taxes continue to be improved

Let's be clear, The customer is the only job creator. Even if these corporation create jobs supplying the demand of the customer, it is the customer who created those jobs and the corporations that facilitated (for a profit) the supply. Even if these corporations hire sales folks that acquire new customers and even hire sub-contractors to fulfill the additional demand, they have only created a customer and facilitated the supply to that customer for a profit. The customer is the ONLY job creator!

Romney talks a good game that sounds very logical, but when you ask for specifics he won't tell anyone what tax advantages he would cut. The analysts have stated that for his plan to work, there would have to be deep cuts to middle-class deductions, including Mortgage interest, healthcare deductions, etc. Cutting Big Bird and planned parenthood is not going to pay for his 20% reduction across the board plus begin to reduce our deficit. In fact the only income bracket that will likely see no increase in tax liabilities is the uber=rich. He doesn't release his specifics because he says that it is something that should be negotiated, so in essence he is saying I have no plan and I want Congress to do my job and tell me what should be cut. That is not how our system works and he knows it. The President submits a proposal with recommendations of cuts, then they negotiate. He just wants someone else to do his job, or he knows that if he gives the specifics of tax cuts and allows us to "do the math" we would never agree to such nonsense. I suggest that it is the latter. Ug!

I think Romney knows what he wants to cut, but no candidate in the history of elections has been stupid enough to say "I'm going to eliminate the mortgage interest tax deduction" and he is no exception.

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