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Battling Tax Plans

By David King Published: August 13, 2012

President Obama has produced a nifty little calculator on his website to show people how much they will benefit from Obama's tax plan versus Mitt Romney's tax plan. You can plug in your family's income, and Obama helpfully shows you how much money his tax plan will save your family, and how much Romney's plan will cost your family (unless you're a very rich family.  In that case, Romney's plan is your best friend, according to Obama). For example, if you're married with two dependent children and your family makes $45,000 per year, Obama happily reports that his good plan will save you $2,720 per year, while Romney's evil plan will raise your taxes by $431 per year. 

That would be helpful, except for one minor little detail. Like almost everything else Obama tells you, you have to be dumber than a box of rocks to believe it.

So let's sort these plans out.

First, Obama's plan. In the above example, where would his $2,720 in alleged tax savings come from ? Almost all of it comes from what Obama calls "extending the middle class tax cuts". For the uninformed, those are the BUSH tax cuts, and they have already been in effect for a decade. They are the current tax rates, so Obama's plan, which isn't even Obama's plan (it's Bush's plan), wouldn't "save" you anything in this area. Your tax bills won't go down. These are the rates you're already paying, and Romney, along with nearly every other top Republican, wants to make those tax rates permanent, a fact Obama conveniently leaves out. The only reason the Bush tax cuts weren't made permanent when they were initially passed was because the Democrats objected.

Thus, the $2,720 in "tax savings" that the Obama tax plan calculator trumpets disappears into the mist like the mirage it is. All that remains of it is a broadening of an already existing college tax credit (called the American Opportunity Tax Credit) and some tax credits for small businesses. 

As usual, President Obama is being as dishonest as is humanly possible regarding his tax plan, which mostly doesn't even exist in reality.

Where things get more interesting is with Romney's tax plan, which, unlike Obama's smoke and mirrors plan, actually does exist, at least up to a point. Romney calls for making the Bush tax cuts permanent (by Obama's definition that would mean Romney is also saving the example family nearly all of that $2,720), and then Romney wants to reduce tax rates even further, by 20% across the board. This sounds like Romney is the real tax cutter, not Obama, but there's a twist. Romney said his plan would be revenue neutral, which in part would be achieved by Romney projecting an extra 1% in economic growth from the lower rates, but would also be achieved by reducing tax expenditures. For those of you who don't know what tax expenditures are, they are exemptions, deductions, and credits that exist in the federal tax code. The problem with Romney's plan is, Romney hasn't specified which tax expenditures he will do away with, and this has led to some speculation. One study, from the left-leaning Tax Policy Center, concluded that Romney cannot reduce tax expenditures enough on the rich alone to make his tax plan revenue neutral. It concluded that Romney would actually have to RAISE taxes on the middle class in order to achieve revenue neutrality, and Obama uses that one study to project Romney's middle class tax increases on his nifty little website calculator. The argument is not without merit. Annenberg FactCheck called Romney's revenue neutrality claim an "impossible tax promise". Romney said his promise was realistic and followed the Simpson-Bowles Commission guidelines, but there is a difference between Simpson-Bowles and Romney's plan. Simpson-Bowles raised capital gains tax rates to 20%, while Romney keeps those rates at 15%. I'm not sure if that's a quantifiable difference, however. Capital gains tax rates and federal revenue from capital gains taxes seem to indicate an inverse relationship, that is, when capital gains tax rates go down, federal revenue from capital gains tends to go up. That's what happened during the Clinton years, and even the Tax Policy Center's data illustrates the trend. Romney's proposal also cuts corporate tax rates to 25%, whereas Simpson-Bowles only cut that rate to 28%.

What we do need from Romney is more specificity regarding the tax breaks he will eliminate in order to do a proper analysis of his tax plan, though I doubt we will get that. Romney said yesterday that, if he is elected, he will let Congress decide which breaks to eliminate. In other words, he's copping out and playing politics. He gives us the good news, but not the potentially bad news.

Naturally, Obama, the Democrats, and about every liberal media outlet in existence are using Romney's lack of specificity to say Romney will raise taxes on the middle class and give huge tax breaks to the rich, while Romney says the opposite. This is what Obama's website calculator does to project it's shadow Romney middle class tax increases. Specifically, Obama's website says Romney will "either raise taxes on middle class families or explode the deficit", but this is Obama being dishonest again. In order to project Romney's plan as exploding the deficit, Obama has to ignore the rest of Romney's economic proposals, which include cutting federal spending from it's current elevated rate of 24.3% of GDP back to historical norms of 18-20%. Romney proposes to cut federal spending by 5% across the board, along with several other spending cuts. While I'm on this subject, think of how disingenuous it is for Obama to pre-accuse Romney of exploding the deficit after Obama himself has exploded it more than any President in American history. Obama has been the nuclear bomb of deficits.

So, there you have it. It's Obama's lies and non-tax plan versus Romney's tax plan which lacks specifics and makes a dubious claim of revenue neutrality.

In my view as an anti-liberal on economic issues, a simpler tax code that does away with all the tax breaks  and crony capitalism is better. A tax code that doesn't punish the business sector and job creators during a time of high unemployment is a lot better (though Romney's plan doesn't go far enough, in my opinion). A plan that gets government spending under control and leaves more money in the private sector is better. A plan that reduces dependency, creates jobs, and gets America back on track as an economic powerhouse is better. That's why I'd go with Romney's plan over Obama's plan any day.

 

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