Mitt Romney has an income tax problem. No, not the Tim Geithner, Charlie Rangel kind.
Many economic conservatives, including influentials such as CNBC’s Larry Kudlow and The Wall Street Journal’s Steve Moore, find Romney’s tax reform plan – points one through seven of 59, to be specific – stale and unimaginative, especially when compared to those of his rivals. Newt Gingrich is pushing a 15 percent flat tax, while Jon Huntsman wants a 23 percent top marginal rate with a code wiped clean of inefficient deductions and credits. And don’t forget Herman Cain’s mothballed 9-9-9 proposal.
And Romney? He would keep the Bush tax cuts, eliminate investment taxes – but only for those making under $200,000 – kill the death tax, and cut the corporate tax rate to 25 percent. Solid but kinda “meh.” The Tax Foundation just graded the tax plans of the various Republican candidates, giving Romney an uninspiring “C-.” It said Romney’s plan “really takes no steps toward fundamental reform … [and] would do practically nothing to incent investment.”
The U.S. economy needs comprehensive, pro-growth tax reform. Taxes are also the ur-issue of the Reagan Republican Party. (As the late Robert Novak put it, “God put the Republican Party on earth to cut taxes.”) What Romney has offered, so far at least, falls short.
And it’s not just the details, it’s the delivery. During his Fox News interview Sunday, Romney again spoke about providing “tax relief” to the struggling middle-class. The wealthy, he added, “are doing just fine.” This pinch of populism is bad enough anytime, but especially with President Barack Obama is preaching a far more toxic version on the campaign trail.
But the economic goal of tax reform isn’t just about putting a few extra bucks in people’s pockets, even if it’s to save rather than spend. Real tax reform is about changing long-term, supply-side incentives to work, save and invest. Do that and the macro economy will grow faster, boosting incomes across the board. It’s an argument that especially needs making in a country where half of taxpayers don’t actually pay any income taxes. That group needs to understand why cutting taxes for entrepreneurs and business would help them.
But there is hope. Romney says that as president he would pursue a “conservative overhaul of the tax system” that would include lower, flatter rates on a broader base — exactly the kind of reform the Tax Foundation and supply-siders advocate. Hopefully Team Romney is working out the details on that proposal for the general election.
And while it would be better if Romney advocated completely eliminating investment taxes — to slowly morph the tax code in a flatter consumption tax — at least he doesn’t think they should be raised. (And anyway, maybe he isn’t the best messenger for that right now since such a change would apparently exempt him from paying income taxes.) Romney also deserves credit for not proposing feel-good tax reform with zero chance of getting passed.
The former Massachusetts governor and venture capitalist has offered a smart agenda on entitlements, trade, regulation, and modernizing the worker safety net. Time for a tax plan to match.