Why Romney's High Growth Tax Plan Trumps Obama's
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The Fiscal Times
February 23, 2012

The juxtaposition between the announcement of tax plans from Mitt Romney and Barack Obama almost assuredly comes as nothing more than an accident of timing.  The President needs to offer some sort of positive economic platform after his budget proposal flopped last week on Capitol Hill and around the country.  Romney needs to give conservatives a reason to rally to his side rather than simply shy away from his competitors in the Republican presidential nomination contest, and to provide a media narrative that distracts from Rick Santorum’s national momentum.  Even so, the two plans show the difference between the two men in economic depth and willingness to innovate.

The President has stoked the class-warfare fires by claiming that the increase would only mean that the rich are paying their “fair share.”

The two plans have somewhat different scope, with Romney’s more of a comprehensive plan while Obama focuses only on corporate tax overhaul.  The change in Romney’s plan that will draw the headlines is an across-the-board 20 percent reduction in tax rates, lowering the highest rate to 28 percent, the same rate Ronald Reagan set in his transformational tax reforms.  The Romney campaign estimates that this change alone will “increase wages in non-corporate businesses by 6 percent, increase investment by 10 percent, and increase business receipts by 16 percent,” citing three different studies authored by Dr. Robert Carroll of American University, a former member of the Council of Economic Advisers and a former top tax analyst at Treasury.  Romney will argue that the impact of that freed income – far more than the ridiculously irrelevant $20 per week in the payroll-tax holiday – will generate real, long-lasting economic growth and job creation.

 

Reducing rates will generate a significant amount of controversy.  Obama wants to campaign on repealing the Bush-era tax rates for the highest bracket, which are due to expire at the end of the year.  The President has stoked the class-warfare fires by claiming that the increase would only mean that the rich are paying their “fair share,” although the actual impact of that increase will be to remove capital from investment markets and to slow economic growth – an outcome predicted by the CBO in their analysis of Obama’s troubled budget proposal.

Romney doesn’t stop there, however.  Where Obama has proposed increasing the capital-gains rate from 15 percent to 20 percent, Romney insists on keeping the rate at its current level – for higher-income earners.  For those making less than $200,000 per year, Romney’s plan would zero out the capital-gains tax rate, along with income tax on interest and dividends.  That would encourage more investment from the middle class while maintaining tax-rate stability for higher-income earners, providing more capital to the market and a broader base for economic growth.

 

The elimination of interest taxes would also encourage savings as well as investment, making the markets healthier rather than encouraging the rapid acquisition of debt.  An economic adviser to Romney hinted to the Wall Street Journal that Romney might consider changing the treatment of carried-interest income from capital gains to normal income to make sure that the capital-gains rate encouraged actual investment.   Romney also wants a repeal of the Alternative Minimum Tax, an annual problem that each Congress has to defuse through temporary waivers in order to keep the middle class from paying a huge tax hike.

 
Political analyst Edward Morrissey has been writing and blogging since 2003. He is also a senior editor at Hot Air, part of the Townhall/Hot Air group of conservative publications, and hosts a weekly radio show in Minnesota.