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A Further Perspective
Mitt Takes a Walk on the Supply Side
Proposes 20 percent cut in marginal tax rates.
Focusing and sharpening his economic policy yesterday, Mitt Romney released his comprehensive tax reform plan which substantially cuts marginal tax rates without falling prey to the deficits-don’t-matter syndrome which has come to typify many Republicans these days. Both supply-siders and budget hawks will applaud this new initiative. He manages a walk down the supply side spurring economic growth while honoring his inner deficit hawk.
“The right way forward is a flatter, fairer, simpler tax system that generates the revenue we need to fund a smaller government that is restrained to its historical size,” said Romney.
At the heart of Governor Romney’s tax plan are permanent, across-the-board 20 percent cuts in marginal tax rates while limiting deductions, exemptions and credits for higher income Americans to insure revenue-neutrality.
As reported by John Harwood for CNBC.com, Glenn Hubbard, Romney’s top economic advisor, said the plan would cut all six current tax brackets —10, 15, 25, 28, 33, and 35 percent (depending on the taxpayer’s income) — by the same proportion of 20 percent. This yields new brackets of 8, 12, 20, 22.4, 26.4, and 28 percent. “It’s a marginal rate cut for every American,” claims Hubbard. Hubbard, a former adviser to President George W. Bush, is now dean of Columbia University’s business school.
The Romney plan will also maintain the current 15 percent rate on income from qualified dividends and capital gains but will cut taxes further for lower- and middle-income citizens with annual incomes below $200,000. In addition, it abolishes the Death Tax, i.e., inheritance tax, and repeals the Alternative Minimum Tax (AMT) for both individuals as well as corporations.
The proposal also calls for reducing the current 35 percent corporate tax rate, one of the highest in the industrial world, to a very competitive 25 percent. It makes permanent the R&D tax credit as a spur to innovation for both manufacturing and non-manufacturing businesses.
Following the lead of Japan and the United Kingdom, Romney would also switch to a territorial tax system, just like most of Europe, restoring American competitiveness in the global market place and encouraging domestic investment of foreign profits. Again, Glenn Hubbard contrasts Romney’s plan, favorably, with President Obama’s “full-throttle attack on multinationals.”
Hubbard also took the opportunity to critique Senator Santorum’s tax plan, reports Harwood, for dramatically expanding the budget deficit and, given its differential or zero tax rate for manufacturing, results in “significant capital misallocation.”
“Net-net, it’s a job destroyer, not a job creator,” said Hubbard. This is a serious policy issue which should be developed further in the course of the campaign.
This supply-side tax proposal should also be viewed in tandem with Governor Romney’s plan to reduce federal spending to 20 percent of GDP by 2016, which he estimates will require $500 billion of non-defense cuts. This, according to Hubbard, is one of three different revenue streams that would keep this tax proposal revenue-neutral along with “dynamic” economic growth from its supply-side effects and additional income resulting from “base broadening” stemming from limiting deductions while lowering the marginal tax rates.
Full disclosure: This writer is a Romney supporter and, as a former fan of the late Congressman Jack Kemp, applauds this new tax proposal as both good politics and even better policy. The Governor is a very convincing budget hawk, but he was losing the initiative on growth and supply-side tax reform while Senator Santorum and Speaker Gingrich proposed pain-free tax cuts that were largely indifferent to their deficit consequences.
Mitt Romney’s supply-side tax cuts are reality-based in that they can be reconciled with fiscal responsibility, which is one thing the Tea Party has taught the Republican Party to take seriously once again.
About the Author
G. Tracy Mehan, III served at the U.S. Environmental Protection Agency in the administrations of both Presidents Bush. He is a consultant in Arlington, Virginia, and an adjunct professor at George Mason University School of Law.
Letter to the Editor View all comments (27) | Leave a comment
More Articles by G. Tracy Mehan, III
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Clint| 2.23.12 @ 6:49AM
" Mark Meckler, a co-founder of Tea Party Patriots, singled out Romney's Massachusetts health care plan as a primary reason why the national front-runner for the Republican nomination "clearly has difficulties" with members of the movement.
"He's attached to RomneyCare and has done a poor job of distancing himself from that," Meckler told reporters at a breakfast in Washington, D.C., hosted by the Christian Science Monitor. "I think he probably squandered an incredible opportunity and was probably the best guy to say, ‘I tried this and it failed,' and he has not done a good job of that. So he has taken positions that are contrary to what the average Tea Partier would take -- positions on man-made global warming, positions on energy efficiency. So I think he's in real trouble with the Tea Party base."
The Tea Party Rebellion Heads To A Brokered Convention.
Fred Farkel| 2.23.12 @ 10:58AM
Romney/ PAul , it's looking like the ticket to be. Get on board. Go for broke. Two Libs joined at the mouth.
c. j. acworth| 2.23.12 @ 7:00AM
"It's a marginal rate cut for every American" claims Hubbard.
It's a marginal cut for the roughly 55% of us who actually pay taxes. I can already see the "millionaire/billionaire" campaign ads coming from the Obama camp. What I wonder is this: does Mitt really believe in his own plan enough to be able to defend it well enough to convince enough voters that it is the way to prosperity? It seems to have come out rather late in the game. After all, he's been running for President for the last 4 years, why haven't we heard this before?
nedb| 2.23.12 @ 8:02AM
There are a number of different plans out there. I prefer a flat tax.
First, repeal the current code in its entirety.
Then put in place a flat tax with a rate of 5%, no deductions at all. Everyone pays. None of this "49% don't pay taxes" nonsense.
If you want to add deductions, then the rate will need to go up a bit to cover them. In regards to 401K and IRA accounts, those are tax DEFERRED, not tax exempt. They can get you now or when you start taking the money out.
The 5% rate? I picked that out of thin air as a discussion point, nothing more.
Now that the tax code is rewritten, start closing all these regulatory agencies. In most cases, they have long since passed their useful shelf life and are now destructive to the economy and our rights. Start with the EPA. Then work your way through the entire alphabet soup of agencies and departments. If it isn't listed in the Constitution, then it needs to justify it's existence. If it goes against the Constitution, abolish it and lay off the people working there.
I suspect we would have a balanced budget in a year or two and surpluses that will enable us to pay off the debt soon thereafter.
Just my opinion, for what it's worth.
And no, I don't support Ron Paul. Or Obomney and I'm not all that thrilled with Santorum.
Harry the Horrible| 2.23.12 @ 11:20AM
I prefer the the Fair Tax. Make the "poor" pay their "fair share" and put the IRS on unemployment.
Quartermaster| 2.23.12 @ 8:19PM
The IRS will exist with the so-called "fair tax" just as it does now. A sales tax has a fairly high overhead when it comes to enforcement. A flat income tax of 5-10% would be with held, and with no deductions, would not require a tax return be filed. A meat ax could be taken to IRS, and most of what is left would simply be clerks, not Accountants or Lawyers.
But, first you are going to have to end the unconstitutional welfare state. That includes all welfare - poor, middle class, rich, and corporate. Along with the rest of the 98% of stuff FedGov does that is not allowed by the constitution, would have FedGov in the black the first year. The debt could be paid off in 20 years, and not come back unless we find ourselves in another serious war.
Indy| 2.23.12 @ 8:22AM
Romney is speaking the OWS language, how insulting. From what I've learned about his proposal it does nothing to simplify the tax code. The problem we face is those NOT paying taxes is growing from 47% to 49.5%, that's socialism. The unintended consequence of the Bush tax cuts was the major expansion of the Earned Income Credit, not only are more not paying taxes, they are getting money back from those of us who do pay Federal Income Taxes...redistribution of wealth on steriods.
Even Simpson-Bowles got this right, the rates must be reduced and deductions reduced or eliminated so that the tax base grows. Romney's plan does nothing to address the problem of the growing number of Americans not paying Federal Income Taxes (yes, I know many of those pay payroll taxes, I get that but for those of us who pay both payroll and Federal Income taxes, it is a problem, the makers can only pay so much)
http://blog.heritage.org/2012/.....ome-taxes/
Von Mises Jr.| 2.23.12 @ 9:40AM
Right on, Indy. Romney is talking the progressive gibberish of the OWS movement. He accepted their premise and is actually talking about making the tax code more progressive.
Segregating Americans into groups, and then dividing them is not free market capitalism. If you pay close attention, the chant has been revised by talking heads to the top 2%, top 5%, or top 10%. What this leads to is taxing the top 50% more, and leaving the bottom 50% as "free riders." I thought the "free rider" problem was the justification of ObamaCare? Now we are going to raise taxes on those working and succeeding to pay the tax burden for 50% of the "free riders" in America?
Al Adab| 2.23.12 @ 11:29AM
Agreed. this latest ploy from Romney should prove beyond doubt that his administration - were there to be one - would flounder about without a direction or compass of principle to guide it. A weather vane if you will going wherever the votes or popularity of the day may be found. In short, a recipie for disaster.
Dmac | 2.23.12 @ 9:44AM
Cutting the rates by 20% sounds really good until you take a closer look. If the everage American household brings in 100k and the rate on that is now say 15% then the tax is 15K. You reduce that be Romney's propsed 20%a and the tax is now 12K. Now lets look at it if you are in Romneys tax bracket. Income 16million. Tax rate of 35% you pay 5.6 million, now reduce that by 20% you end up with 4.48 million. So the average American saves a paultry 3k while Romney saves over 1 million. If you take it a step further and look at what percetage of the total income that is it gets even worse for the averge guy.
I believe the only fair tax is a flat tax of 10% for everyone with no deductions except out of pocket medical cost and your childs college tuition and books and maybe just no deductions at all. Everyone should pay something.
For those that collect welfare, they should be doing many of the jobs that city, county, and state workers do when possible. Doing some kind of work is better than doing no work and colecting a check of the back of those who do work.
JJ| 2.23.12 @ 11:49AM
You mean 999.
Kingofthenet| 2.23.12 @ 1:00PM
So you want welfare recipients to work for a couple dollars an hour? How much do you think they get per month, if you want them to work fine by me, but at LEAST subtract minimum wage from the total owed each month.
Dmac | 2.23.12 @ 4:08PM
What would happen if we passed a law today that made it illegal to quit school, that you must get at least a high school diploma(no GED's). Then passed a law that said begining in 12 years no employer may higher anyone under 25 that does not have a high school diploma. We need to do whatever it is we need to as a nation to have our citizens get as educated as possible. Pass laws that make it illegal for any city , state, county or federal department to give welfare of any kind to high school dropouts.
Talk about needing immigration reform? We need to reform it alright. No more un-educated immigrants allowed. Don't give us your tired. Don't give us your poor and especially don't give us your un-educated because we have enough of our own!
Quartermaster| 2.23.12 @ 8:22PM
All that will happen is a high school diploma will become even more worthless than it is now. If you think ed is dumbed down now, just wait and see what the educrats will do then.
Peppermint Tea| 2.23.12 @ 9:54AM
@Dmac, you are speaking out of both sides of your mouth. First you point out the tax cut that the $16 M incomer gets against the middle class. Then you propose a 10 percent flat tax that will save that $16 million incomer even more.
Make up your mind.
Dmac | 2.23.12 @ 3:58PM
When you remove all the tax deductions that only the wealthy get it levels the field. We then all pay dollar for dollar and equal percentages. The system today with all the legel deductions makes for a very unfair tax system.
Sparky| 2.23.12 @ 11:14AM
By embracing a class-warfare approach to tax policy, Romney is offering the Occupy Wall Street version of supply-side economics. Fortunately, if we end up with a Pres. Romney in 2013, Paul Ryan likely won't waste a minute on this silly proposal.
JJ| 2.23.12 @ 11:47AM
Just look how Romney is spending money on his campaign and you will see just what kind of president he will be. He will do just what Obama does and spend other peoples money so he can reign supreme.
TrueBlue | 2.23.12 @ 3:56PM
I keep trying to point that out, and the fact the Santorum has been doing MORE events and spending LESS than all of his opponents as proof that he knows quite well how to effectively spend money without waste.
Ron| 2.23.12 @ 1:01PM
Dmac is using the OWS language too..."Fair" that Romney level income tax payers are not paying a "fair
Bill| 2.23.12 @ 1:16PM
I enjoyed the bloody wrestling match between Romney and Santorum, while Gingrich and Paul stayed on the sideline, smiling and breathing fresh air coming out from the AZ desert. Romney knew his Romneycare is killling his campaign ans Santorum was shaky and exposed last night, and looked unable to debate a teleprompter guy like Obama. Gingrich will pass on in AX and MI, but will come out strong in the Super Tuesday. Bad news! Romney and Santorum cannot seal the deal. Newt "old man in the sea" Gingrich is live and alive and poses a great threat to rest of the GOP contender.
j| 2.23.12 @ 1:22PM
for individual...make permanent with option to go lower......a thought for corporatate...base it against t-bond amount & duration(s) keep in mind corporate bonds & duration(s).....should these determine the duration of the corporate tax rates as noted in this article...inheritance tax...this will need some structure for the very wealthy...and at initial implementation maybe it would be appropriate to collect a one time adjustment tax on the sorry to say very wealthy or the largest land owner is a better measurement..bcz there are a lot of large land owners.....this could be a point of wealth/income divide/equality issue here too.....
Becka| 2.23.12 @ 2:17PM
Anyone who can understand even the smallest issue of economics, should be able to discern that Romney's latest and greatest is NOT supply side economics. Stop attempting to insult my intelligence. Everybody... Don't buy into this one. Educate yourselves on what Romney is proposing, and educate yourselves on exactly what supply side is.
Leveut| 2.23.12 @ 5:20PM
It's the spending stupid.
Richard Baker| 2.23.12 @ 8:31PM
This guy is trying to be all things to all people. The sheer inconsistency of his views during his endless quest for elective office are breathtaking. I'm just curious as to the next "revelation" in his thinking. We now have a new Harold Stassen. It's either him or Paul who've taken that mantle.
POST American| 2.23.12 @ 11:55PM
--Romney's a PRO NAFTA/GATT
----------------------PRO 'Banker Bailout'
--------------------------PRO Carbon Tax
----------------------------GLOBALIST.
The CFR-Trilateral RED China handover,
sellout, TREASON and EUGENICS OP
-------------------remains--------------------
---------------------THE----------------------
--------------------CORE---------------------
--------------------ISSUE--------------------
---------------HUAC/ NUREMBERG 2012------------
"Let's ALLL DIE --or LET's DO IT."
-Thomas Carlysle
LET'S ---DO----IT!
Sashamanda| 2.24.12 @ 12:28AM
It' s the last quarter of the primary, and Romney has just now developed (borrowed) a modified supply side plan. Maybe, before the nomination, you Romney supporters can teach him to mouth the right words, get him to claim he never supported an indexed minimum wage, and "clarify" what he meant about the harmful effects of cutting spending.