The main feature of the Romney tax plan is that it would reduce the six current tax brackets by 20 percent each. Thus, the 35 percent rate would go down to 28 percent, the 25 percent rate would go down to 20 percent and so forth. Besides these rate reductions, Romney’s plan would permanently extend the 2001 and 2003 Bush tax cuts; eliminate the estate tax, along with the alternative minimum tax (ATM); cut the corporate tax rate from 35 percent to 25 percent; do away with the taxes in the 2010 health reform legislation; and eliminate the taxation of investments of most individual taxpayers.
The Tax Policy Center has calculated that the Romney tax plan would result in a revenue loss of $4.8 trillion over ten years. The ten-year revenue loss, coupled with the estimated $2 trillion cost of Romney’s specified additions to military spending would blow a $6.8 trillion hole in the deficit. Filling that massive hole would mean draconian cuts in all non-military components of the national government budget.
Mitt Romney has contended for a year and a half that major tax cuts are necessary to get the economy moving; however, he changed that pitch at a campaign stop in Ohio, where he warned taxpayers not to expect big tax cuts, because he would eliminate many tax preferences. Romney would thus be taking back with one hand what he gave with the other. He has of yet not identified a single tax deduction, credit or subsidy that he would eliminate.
In the first presidential debate. Romney denied having any knowledge of the tax plan he had been promoting. He then dealt a potentially fatal blow to his election hopes when he vowed not to support any tax increase for those earning over $250,000, because they were doing very well right now. Then, Romney made another vow which was right out of Alice in Wonderland: he said he would not support any tax cut that would increase the deficit. Since all tax cuts increase the deficit, Mitt Romney would either need to propose equivalent cuts in spending, or try to find enough tax preferences to eliminate to achieve a similar result.
Mitt Romney has also talked about achieving revenue neutrality with his tax plan. This claimed goal further illustrates how incredibly confused Romney is about taxation policy. Revenue neutrality would remove the alleged economic stimulative effect of tax cuts, which is the goal of Romney’s taxation plans.
Regarding corporate taxation, the Government Accountability Office found that in 2008, two-thirds of U.S.-chartered corporations didn’t pay any corporate tax; a study of the top 100 corporations in the Fortune 500 found that 25 of them paid their CEOs more than these corporations paid in taxes; and General Electric, which earned $14.2 billion in profits in 2010, paid no corporate income taxes and actually accumulated $3.2 billion in tax credits. It is notable that in the 1950s, corporations accounted for 27 percent of national government revenue and now they account for about a third of that contribution. There is no need to give corporations a major tax break, as, to paraphrase Mitt Romney, they are “doing very well.”
I will close with an illustration that any reader of this blog can do to show how a 20 percent cut in each tax rate benefits the wealthy enormously. This illustration takes three taxpaying households with no minor children, filing jointly. 2011 tax rates are compared to Romney’s proposed rates. Taxable income is as found on line 43 of Form 1040. The couple with $50,000 in taxable income would have tax savings of $990; the couple with $100,000 in taxable income would have tax savings of $3,450; and the couple with $1 million in taxable income would have tax savings of just under $94,000.