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The Public Policy
Restoring the American Dream
How the economy can be booming before next Christmas.
President Obama told a sleepwalking America in his Democrat Convention Acceptance speech:
I won’t pretend the path I’m offering is quick or easy. I never have. You didn’t elect me to tell you what you wanted to hear. You elected me to tell you the truth. And the truth is, it will take more than a few years for us to solve the challenges that have built up over the decades.
But here is the actual truth, rather than a self-serving rationalization — with the right policies, America would be enjoying an historic boom before next Christmas, once again the world’s leading, most prosperous, superpower.
Let the Boom Begin
The boom would begin
the day after Election Day, if Obama is defeated, and his party
returned to minority status in both houses of Congress. Just as on
Election Day, 1994, when the Republicans took over the Congress for
the first time in 40 years, the stock market would immediately
jump, on the expectation that President Romney and his new
congressional majorities would reverse the neo-Marxist policies of
Obama and his Che Guevara Democrats.
Obama told us at the Democrat convention that Romney and the Republicans are not telling us what their policies would be. “They want your vote, but they don’t want you to know their plan,” he said. But in fact they are running on probably the most detailed economic policies of any presidential campaign in history.
Romney has proposed a detailed tax plan, based on reducing tax rates. It is tax rates that powerfully affect economic growth, and particularly the capital investment that creates jobs and increases wages. That is because the tax rates determine how much of their production producers are allowed to keep. Lower rates consequently encourage greater production, and higher rates discourage production.
That is why Romney has proposed to cut income tax rates across the board for everyone by 20%. That is reminiscent of Reagan’s across the board cut of 25% in 1981 that was so dramatically successful, precisely for the reason just explained. Romney would also keep the Bush tax rates of 15% on capital gains and 15% on corporate dividends, which resulted in higher revenues when Bush reduced them, as well as all the other Bush tax cuts.
Contrary to Democrat mythology, those Bush cuts were heavily focused on low and moderate income workers, and the middle class. The bottom rate was cut by 33%, from 15% down to 10%, while the top rate was cut only by 13%, from 39.6% to 35%. Bush also doubled the child tax credit from $500 to $1,000. Both of these were very powerful in eliminating federal income taxation completely on the bottom 50% of income earners, and reducing the share of federal taxes paid by the middle 20% of earners to less than 5% of all federal income taxes by 2007. Those Bush tax cuts also reduced the middle class tax rate of 28% down to 25%, which Romney’s plan would further reduce all the way to 20%.
Romney’s plan would also eliminate federal income taxes completely on long-term capital gains, dividends, and interest income for middle class and lower income workers earning less than $100,000 and married couples earning less than $200,000. Denying these tax reductions to higher income workers in fact is counterproductive because they control so much more discretionary capital they can invest, or not. The taxes on capital gains, dividends, and interest are just unfair multiple taxation of investment income that is already taxed by the corporate and individual income taxes on the same investments. That just further discourages the investment essential to job creation and rising wages and incomes, all of which has disappeared under Obama and his Che Guevara Democrats. For these reasons, these multiple tax burdens should be eliminated for everybody.
Romney would also eliminate the death tax, which is just further multiple taxation of the capital involved in a lifetime of savings and investment that has already been taxed several times. That tax crushes many small business owners at death when they try to pass the family business on to their children, often forcing it to be sold just to pay the rapacious tax. Romney would abolish as well the hopelessly confused and misbegotten Alternative Minimum Tax (AMT). That tax was originally only supposed to stop the richest from avoiding any taxes, but now increasingly would apply to millions in the middle class, especially in high tax states like New York and California, which perversely results in higher federal income tax burdens as well under the AMT.
Then there are all the tax cuts that would result from Romney repealing Obamacare. That includes most importantly the individual mandate tax, upheld by the Supreme Court precisely because it is a tax. That mandate forces taxpayers to buy the expensive, politically correct health insurance not that they want to buy, but that Obama’s HHS Secretary Kathleen Sebelius decides they must buy. While Obamacare includes new health insurance welfare to help pay that cost soon for families making even over $100,000 a year, the net is still like a new payroll tax or income tax. And the new health insurance welfare entitlement is paid for by taxpayers too, of course, and so further represents increased taxes.
Then there is Obamacare’s employer mandate, still another effective tax, focused directly on jobs. The new costs on hiring imposed under that tax are already discouraging hiring, even among employers who currently provide health insurance to their workers, as under Obamacare employers will lose control over the cost of their health insurance, and have to pay for whatever Kathleen Sebelius decides they have to pay for.
In addition, Obamacare involves still another tax increase on investment, applying the Medicare payroll tax to capital gains, dividends and interest for the first time, and then increasing that tax by 62% on the nation’s job creators, investors, and successful small business owners. Then there are hundreds of billions in new Obamacare taxes on health insurance, medical devices, prescription drugs, even tanning salons, and others. Romney would be further cutting taxes by repealing Obamacare and all these tax increases.
The impact of these tax cuts on the budget would be offset first by the repeal of Obamacare. Second would be the impact of the tax rate cuts in restoring economic growth, which would produce new revenues to offset at least some of the revenue lost from the tax cuts. Romney has said as well that he would close loopholes and deductions in the tax code so that all the tax changes would be revenue neutral as a whole.
The great majority of deductions and loopholes in fact do benefit the higher income taxpayers, especially because the deductions are taken against higher rates at those higher income levels, and so result in bigger tax savings. Romney has said in fact that the loophole and deduction closings would focus on the higher income levels, so that “the rich” would not actually net any further tax cuts.
About the Author
Peter Ferrara is Director of Entitlement and Budget Policy at the Heartland Institute, General Counsel of the American Civil Rights Union, Senior Fellow at the National Center for Policy Analysis, and Senior Policy Advisor on Entitlements and Budget Policy at the National Tax Limitation Foundation. He served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under President George H.W. Bush.
Letter to the Editor View all comments (20) | Leave a comment
More Articles by Peter Ferrara
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Aristocat| 10.5.12 @ 6:56AM
The economy is going to take off like a rocket if Romney is elected.
Joellen| 10.5.12 @ 7:35AM
Allow me this once to do a Joe Biden: Three words folks, "three words" - "Drill & Frack Baby".
Petronius| 10.5.12 @ 9:35AM
The weenies only care about how their betters Live high while they don't. Income taxes must be restructured so the bottom feeders understand it all, and be a demonstrable vehicle concerning the accumulation of wealth. Tax should be 1% up to 10K, 5% to 20K, 10% to 50K, 15% to100K, 20% t0 200K, 25% to 1 million, and 31% above that; no deductions. Actuaries should set new exemptions. Restructure FICA and Medicare allowing all to access Federal TSP plans on which taxes are deferred. Cap gains should be nil for portfolios under 500K, 5% on dividends over 10K per year, and 10% of net gains on liquidation for all others.
The real problem is the attitudes of the economically illiterate. A person who would force them to realize government isn't their mommy doesn't stand a chance. Facing the vicissitudes of our new knowledge economy requires a higher level of maturity the entire country eschews with a vengeance. Ned Ludd hanged for it. We must all adapt. And there must be new requirements to the full rights of Citizenship. Linguistic and economic literacy plus working knowledge of U.S. and state constitutions are a given to vote. And chronic welfare recipients should be stricken from the rolls after adjudication by a Magistrate Judge and election boards without proof of disability or infirmities. Only then would entitlement reform occur as it must, or else we sink like Greece. I'd like to be around when prosperity obviates the Community Reinvestment Act.
Von Mises Jr| 10.5.12 @ 10:05AM
The key to a booming recovery can be summarized in the lesson from Hayek's "Road to Serfdom." Central Planning, as Mitt correctly pointed out, mandates that government MUST pick winners and losers.
We do not only have massive central planning out of DC and liberal states, but we have kleptocrats such as Obama, Pelosi, Reid, Schumer, Geithner and others who as Mitt rightly pointed out with Barry, he doesn't pick winners and losers, he just picks losers.
It was an artful way of saying Solyndra and others were simply a theft of the American people's money and wealth.
Once economic decisions are returned to the private sector, then people create and exchange WEALTH. With government, little if any wealth is created, but existing wealth simply redistributed for power and to the cronies and them.
John2| 10.5.12 @ 5:13PM
You are kinder than necessary. Much of this redistribution is really destruction of wealth.
Of course, it is impossible to net out the destructive effects and determine exactly what might have been. That is one reason the body politic has not completely rejected lefty "economics."
But this is wanton destruction in large part.
Von Mises Jr| 10.6.12 @ 8:17AM
You are correct John2. It is why supply-side creates jobs when investors and small business keep their money and invest in production of wealth. Demand-side Keynesian economics consumes wealth by taking it from those who would fuel capital investment and give it to ObamaPhone and Rappers with EBT cards so they do not have to be productive to eat.
It is the equivalent of eating your seed corn.
fmm| 10.5.12 @ 10:45AM
This article and the above comments are a beautiful summary of the rational apporach to governing the economy.
Return to Reason: Romney/Ryan.
Ray| 10.5.12 @ 10:58AM
I would agree with you Peter, but the market jumped immediately after Obamacare was codified by the Court. Why? It eliminated uncertainty and if there's one thing the market hates is uncertainty. I'm a major Romney supporter (and donor), but will tell you if Romney wins, the market will drop 20%-30% rather quickly because it will take him at his word that he'll ask Bernanke to resign. Romney will appoint a new Fed governor who will end all of this QE nonsense and raise rates. The markets will throw a conniption fit and sell off violently. Long-term this will be very beneficial for the economy and markets, but short term disastrous. Watch the market, if it continues to rally, Obama will win, if it starts to weaken and sell off, Romney will win.
Bill8472| 10.5.12 @ 11:25AM
When Obama tells us we elected him to tell us the truth, that's a lie.
He ran on a platform of Hope and Change, neither of which have anything to do with telling the truth.
JD| 10.5.12 @ 11:39AM
Telling the truth would be a change, and would give us hope. That's why it's a lie that he promised us hope or change.
Bill8472| 10.5.12 @ 12:17PM
It should be "neither of which HAS anything to do with telling the truth."
JD| 10.5.12 @ 11:40AM
So long as Democrats do not believe the empirically proven truth that lowering rates often increases federal revenue, they cannot believe that Romney could make revenue-neutral changes. They will accuse him of lying even if he's elected and proven right.
JD| 10.5.12 @ 11:41AM
The measure of the merit of tax changes should not be how they affect the government's bottom line. The measure of the merit of tax changes should be how they affect the people's bottom line!
Von Mises Jr| 10.5.12 @ 11:55AM
The tax debate is intended to deflect the real issue of SPENDING and socialist ownership of our oil, natural gas, and moving towards farmland, fisheries and water. Then we are slaves while arguing over 25 v 28% marginal rate for the two income family.
JD| 10.5.12 @ 12:31PM
Marginal rates have become even more meaningless numbers than "income".
There is little correlation between marginal rate and what a person actually pays, owing to the variance in deductions and credits from person to person.
More and more, the correlation between "income" and what a person actually has spent on his well-being is disappearing as well, as tax expenditures and social welfare combine to frequently leave lower "income" people with more wealth than higher "income" people.
In a "from each according to his ability, to each according to his need" society, there is definitionally no correlation between what a person produces (according to his ability) and what he ends up with (according to his need). The whole point of the saying is that there should be no correlation!
Leftists continue to dishonestly justify themselves by using relative income to measure the "need" for more redistribution, even though redistribution doesn't directly affect income numbers.
Von Mises Jr| 10.5.12 @ 1:33PM
Big Corporations with Lobbying Money pay an effective rate of 10%. It is the SMB that hire about 25% of the work force that pay at the Marginal Rate. So if you are running a small business, you are paying 35% ranges compared to crony capitalist that pay less than one-third of their rate. That is the problem Mitt was explaining in the debate. If the rates go even higher then these people have to cut more jobs.
Ronsch| 10.5.12 @ 12:27PM
But, just today, the BLS said that unemployment has decreased to 7.8%....So NerObama and his cast of idiots are claiming his tax and spend works...If this is the big "October Surprise" it seems like a dud...
Kwan| 10.5.12 @ 4:34PM
Romney's Plan is not as innovative as Obama's Plan which consists of reducing the freedoms of the citizenry to zero, and increasing the Totalitarian control of the population by the central government. We could then just define the Hope and Change Plan as "The 1984 Plan" after George Orwell's nightmarish novel about a society under the authoritarian control of an all-powerful central government.
aware| 10.5.12 @ 5:29PM
Only 1/3 of us have a problem with 30 thousand police drones in our skies in the next 10 years.
http://www.cbsnews.com/8301-20.....u.s.-poll/
A majority now wants, even welcomes, the Eye in the Sky. The grip will continue to tighten no matter the election's outcome. Only the speed is in question.
HBowen| 10.7.12 @ 7:33PM
Take Manhattan Island. Look back to the American Dream of 1776, when all the dreamers picked up their shovels and hammers and saws and began to dig, pound and cut. Who was there to stop them? Now, in 2012, take essentially the very same shovels, hammers and saws and distribute them to the inhabitants of Manhattan Island and tell them to rise up from their dreams in front of them on TV and start to dig, pound and cut.