Pethokoukis

Are Romney and Ryan throwing away the tax issue?

Romney Reagan

Republican National Convention — Tampa, Florida

As the late Robert Novak once put it, “God put the Republican Party on earth to cut taxes. If they don’t do that, they have no useful function.”

And since 1980, the tax issue has been a key driver — perhaps the key driver — of electoral success for the GOP. With that in mind, take a look at this tough tweet today by CNBC’s Larry Kudlow:

During his speech last night, Paul Ryan mentioned the word “tax,” one way or the other, seven times.

– “What did the taxpayers get out of the Obama stimulus? More debt. That money wasn’t just spent and wasted – it was borrowed, spent, and wasted.”

– Obamacare comes to more than two thousand pages of rules, mandates, taxes, fees, and fines that have no place in a free country.

– You see, even with all the hidden taxes to pay for the health care takeover, even with new taxes on nearly a million small businesses, the planners in Washington still didn’t have enough money.

– With tax fairness and regulatory reform, we’ll put government back on the side of the men and women who create jobs, and the men and women who need jobs.

– I learned a good deal about economics, and about America, from the author of the Reagan tax reforms – the great Jack Kemp. What gave Jack that incredible enthusiasm was his belief in the possibilities of free people, in the power of free enterprise and strong communities to overcome poverty and despair. We need that same optimism right now.

– He was the Republican governor of a state where almost nine in ten legislators are Democrats, and yet he balanced the budget without raising taxes. Unemployment went down, household incomes went up, and Massachusetts, under Mitt Romney, saw its credit rating upgraded.

But no where did supply-sider Ryan talk about cutting taxes, even though his new boss, Mitt Romney, says he wants to cut everyone’s tax rates by 20%. Ryan didn’t even use the phrase “tax cuts” when talking about Reagan. Instead, the speech went with the wonkier, softer “tax reform.”

Now here is Ryan in his Path to Prosperity budget:

A world-­‐class tax system should be simple, fair and pro-­‐growth. The U.S. tax code fails on all three counts. The tax code is notoriously complex: Individuals, families and employers spend over six billion hours and over $160 billion a year trying to negotiate a labyrinth of deductions.  The tax code is patently unfair: Many of the deductions and preferences in the system – which serve to narrow the tax base – were lobbied for and are mainly used by a relatively small group of mostly higher-­‐income individuals. And the tax code creates a drag on growth, because it is highly inefficient, uncompetitive and unpredictable

In fact, Ryan spends nine pages attacking the current tax code and Obama’s tax hikes while making the persuasive case for pro-growth tax reform, including cutting the top marginal rate to 25%. And fairness is defined in terms of crony capitalism rather than liberal notions of equity. Why wasn’t some of that stuff his speech? Good question.

And who knows, maybe Romney himself will really hammer the tax issue tonight.

In his 1980 nomination acceptance speech, Reagan mentioned taxes some 20 times and aggressively pushed for tax cuts:

I will not accept the excuse that the federal government has grown so big and powerful that it is beyond the control of any president, any administration or Congress. We are going to put an end to the notion that the American taxpayer exists to fund the federal government. The federal government exists to serve the American people. On January 20th, we are going to re-establish that truth.

Also on that date we are going to initiate action to get substantial relief for our taxpaying citizens and action to put people back to work. None of this will be based on any new form of monetary tinkering or fiscal sleight-of-hand. We will simply apply to government the common sense we all use in our daily lives.

Work and family are at the center of our lives; the foundation of our dignity as a free people. When we deprive people of what they have earned, or take away their jobs, we destroy their dignity and undermine their families. We cannot support our families unless there are jobs; and we cannot have jobs unless people have both money to invest and the faith to invest it.

There are concepts that stem from an economic system that for more than 200 years has helped us master a continent, create a previously undreamed of prosperity for our people and has fed millions of others around the globe. That system will continue to serve us in the future if our government will stop ignoring the basic values on which it was built and stop betraying the trust and good will of the American workers who keep it going.

The American people are carrying the heaviest peacetime tax burden in our nation’s history — and it will grow even heavier, under present law, next January. We are taxing ourselves into economic exhaustion and stagnation, crushing our ability and incentive to save, invest and produce.

This must stop. We must halt this fiscal self-destruction and restore sanity to our economic system.

I have long advocated a 30 percent reduction in income tax rates over a period of three years. This phased tax reduction would begin with a 10 percent “down payment” tax cut in 1981, which the Republicans and Congress and I have already proposed.

A phased reduction of tax rates would go a long way toward easing the heavy burden on the American people.

Now that is how you sell “tax reform.”

Of course, that was then, this is now. The tax code is vastly more pro-growth in 2012, even with all its imperfections, than it was in 1980. Regulatory reform, immigration reform, and cutting spending are also important pro-growth issues.

But tax reform — including tax rate cuts — is just as imperative. A reformed tax code that is pro-investment — including lower rates, fewer distorting deductions — would boost economic growth, create jobs, raise incomes, and make it easier to pay down our debt.

Fundamental tax reform should be fundamental to reform conservatism and to any political campaign selling pro-growth economics.

12 thoughts on “Are Romney and Ryan throwing away the tax issue?

  1. All right, Jim, cards on the table:

    EXPLAIN HERE AND NOW, HOW LOWERING MARGINAL TAX RATES, WHILE CUTTING OR ELIMINATING DEDUCTIONS ELSEWHERE, “BOOSTS ECONOMIC GROWTH.”

    You have the floor. This I gotta hear. And it better be good.

    • Difficult question, but I’d have to go with because your marginal rates are lower, giving you more incentive to earn that next dollar. Well, maybe not so difficult after all.

      You seem to be of the opinion that elimination of deductions means that the effective marginal rate will be unchanged, but provide no evidence of that premise.

      • He’s providing precisely as much evidence as you are providing for the claim that people will produce more if the marginal rate goes from 35% to 25%.

        People could just as easily decide that since they can keep the same amount of money with less effort, they’d prefer more leisure time.

        Oh, wait – here’s some actual data on the correlation between top marginal tax rate and GDP growth rate:

        http://news.yahoo.com/blogs/signal/does-28-top-marginal-tax-rate-mean-175706337.html

        From 1946-2011, there are only thirteen years in which real GDP growth exceeded 5%. Only one of them occurred when the top marginal rate was 50%. The rest of them occurred when the top marginal rate was 70% or higher.

        One could just as easily argue from this data that the way to give people an incentive to produce more is to _raise_ their taxes, so that they will try to compensate for the loss in after-tax income.

          • @Greg – I was not aware that 1961-1986 was “the decade or so after WWII”. One of us is seriously confused as to both the end date of WWII and the meaning of the word “decade”.

            I don’t recall ever claiming that taxation was glorious. I’m just pointing out that the Republican claim that low marginal rates correlate strongy with high economic growth (and vice versa) is not supported by the data. My comment about raising taxes to provide incentive was tongue-in-cheek – support for that theory _also_ does not exist in the data.

            Mind you, we may very well get improved growth next year. The housing market looks to be recovering finally, which is important. If Romney is elected and enacts his tax proposals, would it prove that lower marginal rates caused that growth? If Obama is re-elected, would the same improvement be evidence that his economic policies were good after all? Or would it simply show that the recession had reached its natural end?

      • Sir, the point was WHAT IS THE DIFFERENCE?

        If you cut taxes on the upper level of my income by 10%, but you slash the deductibility of my property taxes and mortgage interest, not only have you cratered real estate (which TEFRA 1986 did a wonderful job of) but you may have in fact INCREASED MY TAXES. Add to that the reduced deductibility of State and local taxes, and you have a situation that I’m in: I am paying more for local government than I am to the Feds, and my County does not have a standing army to support.

        Moreover, your comment: “giving you more incentive to earn that next dollar.” is utter nonsense. Tax rates do not “encourage” or “discourage” anyone’s efforts and I defy anyone to prove that.

        I know of no successful person who approached any task with the passion needed to succeed in life who asked himself what tax policy would be in order for him to continue.

        Now then, Mr. Pethokoukis, I want my question answered: How does Hubbard’s shell game of cutting marginal rates (which reduces the value of deductions by itself) AND eliminating tax deductions provide the mechanism to spur economic growth?

        I want this explained.

        • There is one way in which I would concede that Romney’s proposal could be pro-growth: by eliminating economic transactions that are more motivated by their tax effects than by their natural economic value in the absence of tax incentives. However, I really have no idea how much growth is lost due to the distorting effects of tax preferences – and I suspect Romney doesn’t either.

          Also, I don’t think he goes far enough. For example, why should capitalizing a business by purchasing its stock be tax-advantaged over capitalizing it by purchasing its bonds? If the Republicans were consistent, they’d let the market sort out the best way to fund any particular business. (Granted, that could be done not only by eliminating the capital gains deduction, but alo by giving interest income the same preferential rate as capital gains.)

          Note also that the pro-growth effect of eliminating economic distortion has nothing whatsoever to do with any cut in tax rates. If the goal is to keep total tax collections the same, Romney could keep the top rate at current levels, and offset the loss of targeted deductions by increasing the personal, standard, and dependent deductions. Rather than shifting post-tax income towards the rich, as Romney’s plan would almost certainly do, this option would give workers towards the bottom of the income scale more disposable income, potentially growing the economy by boosting demand.

          It seems to me that in the current recession, the tax rate is immaterial. Businesses are not failing to hire and invest because the post-tax profit is too low; they are not hiring and investing because they worry there will not be sufficient demand to make the additional output profitable even at a tax rate of zero.

        • “Tax rates do not “encourage” or “discourage” anyone’s efforts and I defy anyone to prove that.”

          Anyone? Well, they influence MY effort.

    • Simple. The current federal tax code wastes almost all of the 6 billion man hours it consumes, worth about $300 billion, or 2% of GDP.

  2. Mr. Romney has few topics about which he can now speak. One by one, the substantive topics for debate are disappearing, deemed too problematic for the Romney campaign to address. Business acumen, experience as governor, US Olympics, Romney budget, women’s issues, immigration reform, all toxic. Mr. Romney is reduced to dragging out the birther baggage to pad his stump speeches and give his base a few crumbs. And to call attention away from his flip-flopping on all important issues.

    But what is the single issue on which Mr. Romney has never flip-flopped? He stands doggedly firm on never, under any circumstances, releasing his tax returns.

    Why?

    With so many questions swirling around Romney’s byzantine financial dealings, voters are left with very little real information about this very secretive man, who is running for the most important elected position in the world.

    Obama has released 12 years of tax returns
    GW Bush10 years
    Clinton 12 years
    GHW Bush 14 years
    and George Romney 12 years.

    It is not just liberals who want to see Romney’s tax returns.
    It is 63% of American voters who do.

    The longer Mr. Romney delays, the more suspicious it appears.
    What is the problem, Mr. Romney? Release your tax returns.

  3. There’s a good reason Ryan didn’t talk about cutting taxes: Romney has explicitly promised not to do it.

    True, he’s cutting tax _rates_ by 20%. But he also promised that he’d eliminate enough deductions that total taxable income would go up by enough to preserve total revenue. While some people’s taxes (i.e, total payment amout) may indeed be cut, others will see their taxes rise by an offsetting amount. That’s a tax shift, not a tax cut.

  4. The reason Paul Ryan doesn’t want to talk about tax cuts is because his budget aimed to increase federal revenues to 19% of GDP. Of course, it’s unlikely that this will happen – it’s hard to see how it would, seeing as so many deductions are (perhaps rightly) off the table and he wants to cut marginal rates significantly. But that was his plan, and I can’t imagine Romney wants to decrease federal tax revenues as a share of GDP, either.

    Isn’t it a serious risk cutting taxes when there’s a large structural budget deficit? Shouldn’t the focus be on getting spending down, and then tax cuts can be contemplated once a surplus has been achieved?

    It is also very worth noting that reform of the overcomplicated tax code would have major benefits – although generating instant economic recovery is not one of them. It’s, again, hard to imagine Romney seriously undertaking reform, though, having already shown his reluctance to eliminating low-hanging fruit like the mortgage interest deduction.

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