Economics, Taxes and Spending

Romney’s tax troubles … with conservatives

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.

20 thoughts on “Romney’s tax troubles … with conservatives

  1. Yeah, because all those Bush tax cuts worked so well in creating jobs and avoiding the Great Recession after the Clinton tax rates destroyed the economy in the 1990s.

  2. The economy has been shaken. The last thing it needs is to be tested again with controversy. Stability and a president who understands the strengths and weaknesses of free enterprise is all this country needs to get back on its feet. A flat tax is an ideal – idealism is not what this country needs right now.

  3. This economy was made brittle by an idealistic government that believed that every family deserved to own a home. It was sent into the abyss by an idealistic government that decided that the every person deserves the same health care coverage. A much less grandiose government is what this country needs so the ambitions of its citizens will allow it to thrive.

  4. Scott, if only it were that simple. The present state of our economy can be traced back to leaving the gold standard (a good move) followed by irresponsible governing on both sides. Both parties became captive to corporate and banking interests and allowed our productive economy to shrink to only 50% of GDP while the other half became dominated by bubble-blowing financial parasites. We took on a massive amount of public and private debt (fueled by artificially low interest rates and cheap oil) which only works if we have perpetual growth. Unfortunately, our growth has become oil constrained (note the big spike in oil prices right before the great recession). The only thing that will stop the dollar from crashing hard is massive government cuts and/or tax increases to get our deficit spending under control. However, enacting such policies will cause an immediate recession so if anyone tries it they will likely get kicked out of office and we’ll get back on track to dollar destruction. In the next election cycle. That will eventually lead to rising import prices (including the price of oil) and a further declining standard of living. The long-term solution, is alternative energy. Welcome to the wonderful world of peak-cheap-oil. If you want to know what’s really going on, start with Eric Janszen’s 2010 book and proceed down the rabbit hole from there.

    • Bad economics? People who are good at making money should be left alone to make more because that’s how new jobs, goods & services and technologies are created and living standards are improved. Governments good at wasting money should be deprived of it until they learn how to spend it efficiently. People who depend on government should do so only because they can’t improve their condition by depending on themselves. That’s good economics and good common sense.

      Fealty to the mega rich? You’re joking, right? Fact: Obama has received more contributions from Wall Street firms and fat cats than any Republican. Fact: In 2008, 20% of Obama’s campaign cash came from Wall Street. Fact: This year, 30% of Obama’s campaign cash has come from Wall Street. Fact: In the second quarter of 2011, the DNC and Obama raised $86 million from 224 Wall Street bundlers, among whom John Corzine figures prominently. Fact: This year Mitt Romney raised $18.3 million from Wall Street firms and fat cats, which is $67.7 million less than Obama and the DNC. Fact: John Corzine, former governor of New Jersey and current Wall Street fat cat running MF Global, lost or stole $1.2 billion of his customers’ money. Bet: The Democrats will cover for John Corzine, who is one of their most loyal Wall Street fat cats, so that he’ll never do a minute of jail time.

      You know, StevenDS, people like you are just as big a part of the problem as the Democrats and their loyal Wall Street fat cats because you refuse to acknowledge facts and reason. We conservatives simply can’t work with you because we can’t reason with according to the facts. Therefore, we simply have to defeat you. That’s a shame, really, because we’ll never attain a stable polity built on common consensus, and the losers will continuously spew their discontent by moaning about the partisanship that must result from their refusal to face facts and deal in reason.

  5. There is a well researched tax move that is just waiting for a major candidate’s embrace … the FairTax (HR25/S13). When people really take the time to understand the FairTax most support it.

  6. David, I think you underestimate the strength of this country’s resources, namely it’s people. One of the great strengths of the free market is the ability to correct itself. Rather than weakening our economy, as you surmise, recessions ultimately strengthen our economy by forcing greater efficiencies and innovation. A large economy, however, doesn’t turn on a dime. It’ll take time but you watch, this economy will come back in a big way. We just need the clouds to part so the sun can shine in and allow the sprouts to grow now cleared of the dead undergrowth. Obamas great failing is not understanding this principle. He missed a huge opportunity to turn this economy around and the DNC will pay for it for years to come. Yet another positive for this county’s future economy.

    • Scott, I hope you are right, but I think you are overly optimistic. It took World War II to get us out of the great depression. The difference between now and then is that we are extremely in debt (public, private and corporate) and we are a nation of importers instead of exporters. Neither situation can be turned around easily. Combine those problems with constricting oil supply and you have a nightmare situation in the works. The only upside is that as bad as we will have it, everywhere else in the world will have it worse.

      • Google, Apple, Twitter and Facebook are all American companies that have thrived in a down economy. These are just a handful of the hundreds of American companies that are changing the world by making information more accessible. Imagine what we could do in a good economy? There will always be headwinds, but as long as there is incentive to prosper in this country, those headwinds will not deter our will to improve ourselves and our place in life.

        • Our problems are much deeper than most realize. I.T. companies, while providing an excellent and worthwhile service to humanity, are exacerbating the problem because our aging political systems aren’t designed to protect us.

          Imagine for a second, the theoretical end game of industrialization, automation and computing. You’ve seen it in films like the Terminator and The Matrix. Robots become master of all resources on the planet (which are finite) and humans become obsolete. We’re far from that sort of thing (assuming it’s even possible), but our situation features similarities.

          Due to industrialization, the value of unskilled human labor, while not zero, is very low to those who own the means of production. They are not robots, but they are heartless bastards by and large. Hence, they only want to pay us the bare minimum needed to keep us servile. That cost is quite high in America, but those in control have put continual downward pressure on our standard of living through outsourcing and other schemes that redistribute wealth upward (overall).

          Libertarians say that human wants are unlimited, hence there is always value to human labor. But what kind of economy can exist between 10 starving people in Africa? Can one extremely poor person in America afford to hire another as a maid (even under the table)? Perhaps, but not at a rate of pay that will alter the maid’s standard of living significantly.

          You may wonder what this has to do with anything. The ultimate problem is that all the nice things that middle class Americans enjoy… all the things that we believe everyone in the world ought to have access too… their very existence is limited by the supply of oil in the world (oil being the current bottleneck in the global supply chain). America’s arrangements that have provided us with a steady supply of cheap oil for decades (and hence an inflated dollar and cheap imported goods of all kinds) are breaking down because global supply has flat-lined (our national supply peaked in the 70′s and don’t try to blame it on environmentalists… we’re actually very lucky that we’ve been using up the rest of the worlds oil and saving our own diminished reserves).

          So yes we can climb out of this mess, but the problems we face are so much deeper than most people realize. Barring a miraculous increase in oil discoveries, it will be decades of slow decline while we develop new energy technologies and increase energy efficiency. During that time, the only way to reverse the declining living standards of the middle and lower classes will be to redistribute wealth from the rich and upper middle class. But they will fight that tooth and nail using long established memes concerning capitalism and free-markets. Democrats might manage to redistribute wealth a bit, but they won’t be able to raise the taxes to pay for it, hence it will be less a redistribution from the rich to the poor, and more from future to present (and since foreigners finance our government via bonds, what we’re really doing, as a nation, is taking from poorer countries for our benefit and the short-term benefit of their ruling classes; a continuation of the status quo in other words).

          I hate to even post this… it makes me ill just thinking about it. Honestly, the scenario above is the good scenario where we eventually replace oil with something better. Some argue that it is physically/chemically impossible for us to replace oil and the end of growth won’t be a lost decade or two, but a permanent global condition. People with a grasp of this information are usually detached academics with little understanding of people and I think they greatly underestimate what the true outcome would be. They envision a return to simpler lifestyles… what I see is the apocalypse. If you’re the praying sort, then pray I’m wrong.

          • A little perspective, I worked part-time at Trader Joes for 10 years while taking classes improving my skills until moving on to a career that paid more (actually if I’d stayed at Trader Joes, I possibly would be making more right now). I say this because there is nothing priviliged about how I’ve made it in life and there’s no reason why anyone in this country or any other country couldn’t follow the same path. Low skilled jobs are a means to an end. Some choose to improve their skills, some choose to have families, some choose to live a simple lifestyle. The point is, at least in this country – they get to choose. Yes, oil is a limited resource. So is water. The reason Rome grew was because they figured out a way to get drinkable water there. Boom – no longer a scarce resource. Primitive man would’ve found it inconceivable to be able to do such a thing. Hamans have dealt with much worse than what we are now. Reality check – we are freaking out about 9% of us not being able to participate in the economy. Compare that with the plague or the holocaust.

          • I think real unemployment is closer to 20% and underemployment is another 15%. As long as you still have a job and most people you know (particularly your immediate family) still have jobs, you’re not really feeling this depression yet. Besides, things haven’t really gotten going yet.

            That said, a certain mindset will be a big advantage and you seem to have a good one.

            Also, think I got a bit off topic here :)

          • I have 2 under water mortgages and have been laid off twice since 2007. Trust me, I’m feeling it.

  7. Wow, still spreading the myth that lower taxes for the wealthy will “trickle down” benefits to the rest us, when the era of the Bush tax cuts has so clearly proven otherwise.
    We need to do what Clinton did early in his presidency and get taxes on the wealthy back up where they belong…let’s see, how did that turn out? Best decade in recent history, that’s how, when combined with Newt’s budgetary controls.
    What I want to know is why do we tax hard work more than unearned income? There is no shortage of capital these days, but there is a serious shortage of DEMAND that will create opportunities for capital to be deployed, a deployment that has never been dictated by tax rates when true opportunities are present.

  8. Romney can read a poll. Almost 60% of Americans support INCREASING taxes on the rich. They are wrong of course but it is what it is. He is putting forth a growth plan that would be politically possible, not the perfect plan that all of us Conservatives would love.

  9. More fall out for Romney because he wouldn’t sign the Tax Foundations Pledge…. (yawn)….

    Romney is pragmatic…. he deals in the real world…. He will deliever on what he promises…. All three of these traits are foreign to Gingrich and Perry….

    20% flat tax (but you can file under the existing plan if you choose)…. 15% flat tax with a provision to file under tax laws…. Both are Pandering programs that cannot and will never become law… Both underfund the economy and both deliver a kick to the face for those who are unemployed….

    Give me the Pragmatic guy…. The one that can deliver.

  10. Mitt Romney is a timid nibble around the edges guy in a time when we need bold fundamental pro-growth tax reform that removes the junk from the tax code while simultaneously lowering and flattening the rates (thereby broadening the tax base). Sadly he has surrendered to the Class Warfare Left by refusing to lead on fundamental tax reform in a futile attempt to innoculate himself from the nonstop chorus of “tax cuts for the rich” from the Loony Left.

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