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.
