Economics, Taxes and Spending

Is the Romney tax plan bold enough?

Mitt Romney’s updated and enhanced tax reform plan has left some conservatives unenthusiastic, particularly over at National Review. Kevin Williamson writes that “Romney Whiffs on Income Taxes.” Ramesh Ponnuru and Reihan Salam both call it the “Bob Dole tax cut.” (I’m pretty sure that is not an endorsement.) By that, they mean the Romney plan lowers marginal tax rates—Dole called for a 15 percent cut back during the 1996 campaign—but keeps the same number of tax brackets. Romney would also scale back tax breaks, particularly for high incomers.

Here’s what Kevin would prefer Romney had proposed:

He would have done far better to adopt a single-rate income-tax proposal that eliminates all exemptions and deductions — for rich, middle class, and poor alike, all of them being American taxpayers — treating all income the same (salary, dividends, capital gains, inheritances, gifts, whatever), and abolishing double-taxation through the corporate tax (corporate profits should be taxed as regular income when they actually hit somebody’s pocket in the form of bonuses, salary, dividends, capital gains, etc.). That probably (though not necessarily) would mean a tax increase for the middle class and a tax cut for higher earners — which would also be true of any tax reform that is flatter and fairer. The middle class pays disproportionately low taxes and collects a disproportionately large share of government transfer payments.

Then there is the plan Ramesh cooked up with economist Bob Stein, a plan Reihan also has much praise for. The Ponnuru-Stein approach:

– Reduces the number of tax brackets to two (at 15% and 35%), and the threshold for the top 35% rate is going to be lower than the current threshold for the top rate;

– Curbs tax expenditures, eliminating all but the charitable deduction and a much-reduced mortgage interest deduction (now available to all filers);

– Increases the size of the child tax credit to $5K — but this credit is non-refundable (i.e., if your tax liability is less than $5K, you won’t get a refund check from the federal government) and it is payable against all federal taxes, including payroll taxes.

Both plans have some great features. Plan Williamson would be flat and eliminate the double-taxation of capital. Ponnuru-Stein would make the code simpler and reduce the code’s anti-family bias. But Romney’s plan has some big pluses, too. It has a low top rate and keeps investment taxes low. It would also trim tax expenditures, though we don’t have much detail on that.

As for myself, I probably prefer some version of Ponnuru-Stein, especially if it lowered the top rate. P-S would also eliminate corporate double taxation. Reihan speculates that Team Romney didn’t endorse something like P-S because the supply-side Wall Street Journal wouldn’t like it. But it seems like there are enough moving parts here to satisfy everybody. Or maybe Team Romney couldn’t make the numbers balance to their liking. I dunno, though I look forward to finding out. But the Romney plan is a huge move in the right direction on tax reform, as Reihan notes. Look, if in 2017 the top income tax rate is 28 percent, the corporate rate is 25 percent, and the cap gains rate is 15 percent, I would be delighted. And, I think, so would most folks at NR.

One thought on “Is the Romney tax plan bold enough?

  1. Among Williamson’s “eliminate all deductions” is the mortgage deduction. Oh well, the rich will get more, the middle class will see the housing market devastated – again.

    Not even Reagan, when he eliminated deductions, touched the mortgage deduction. He understood its importance.

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