Wednesday, July 18, 2012

Digganalysis of Romney's 59 Point Plan: Part I Tax Policy

Having listened to Romney and his team of surrogates talk about his 59 point plan for turning around the economy, I decided I had to delve into it with an open mind, not really.  Before going into the details, let me share some general comments about the plan:

·         Neither the CBO nor the Joint Tax Committee could score the plan because it lacked sufficient detail.

·         The Tax Policy Center estimated the plan would give the richest 0.1% a $725,000 tax cut while forcing families making <$30,000 to pay more.  Most middle class families would get an $810 reduction in taxes.  It also would increase the deficit to 5% of GDP from the current 3.1% while adding $3Trillion to the debt over a decade.

·          Romney defended his “plan” by saying it couldn’t be scored because he intentionally left out the details.  That makes it more like a collection of ideas and less like a plan.  For a man who was an astute business man and was heralded for his business planning acumen, his lack of a full-fledged plan is alarming.

·         Romney doesn’t specifically say how he will offset the decrease in tax revenue.  One thing for sure, he will not include the bloated defense budget.

·         The plan is written in the third person (George likes his chicken spicy) so quotes are actually lifted from the plan.

Tax Policy

·         “The goals that president Bush pursued in bringing rates down to their current level to spur economic growth, encourage savings and investment, and help struggling Americans make ends meet – are just as important today as they were a decade ago. Letting them lapse, as President Obama promises to do in 2012, is a step precisely in the wrong direction.”  Sounds great except it’s not true.  President Obama is keeping taxes low for 98% of Americans, the 2% who will see their taxes increase neither spur economic growth nor are they struggling.  Tax cuts did not encourage savings and investment, if they did why did personal savings rate fall dramatically under the Bush era?

·         “Mitt Romney will seek to make permanent the lower tax rates for investment income put in place by President Bush.”  Clearly that gives Swiss Mitt something to yodel about as he will pocket more coin while keeping his personal tax rate at <15%. 

·         “As president, Romney will seek to eliminate taxation on capital gains, dividends, and interest for any taxpayer with an adjusted gross income of under $200,000 helping Americans to prepare for retirement and enjoy the freedom that accompanies financial security.  This would encourage more Americans to save and to invest for the long-term.” Sounds great, of course he offers no offset and this smacks of a Social Security privatization scheme.  Besides, most Americans are barely getting by and are not dependent on investment income as part of their financial portfolio. 

·         “Washington’s problem is not too little revenue, but rather too much spending.”  A classic CONservative argument that exemplifies the sad state of the Republican Party.  Romney, like the rest of the clown car candidates would not accept a deal that includes $1 of tax increases for $10 of spending cuts.  This tells me that Romney is not serious about deficit reduction

·         “Right now, with a top marginal rate of 35%, it vies for the developed world’s highest, placing our companies – indeed, our entire country- at a competitive disadvantage.”  Where to begin.  Firstly, President Obama has also stated his desire to reduce marginal corporate tax rates.  The difference is the president actually outlined how he will lower the marginal rates by closing specific loopholes while Romney offers no details.  Why are details important?  America’s 35% corporate tax rate is, next to Japan, the highest in the world and this rate is often cited as the reason why corporations ship jobs overseas. But what of the effective tax rate, the rate companies really pay was significantly lower? Here are some effective tax rates for some US companies: General Electric: 3.6%, Merck: 12.5%, H-P: 20%, J&J: 22%, Wal-Mart: 33.6%, CVS Caremark: 38.8%.  Why the wide range of rates across this small sample? Simply, loopholes and tax credits. High tech industrial giant GE benefits from tax breaks from R&D tax credits and new rules about depreciation expense for capital investment. While unfortunate consumer retail companies like Wal-Mart and CVS do not have access to these loopholes. So, what do you think the odds are that GE, its lobbyists, and bought and sold Congressmen will push for tax code changes that could result in them paying higher corporate taxes because if the rates get lowered the loopholes get closed and the tax breaks get eliminated? And for that other great idea I hear from Republicans about allowing American multinational companies to repatriate their dollars from overseas via a tax holiday, because that will lead to job growth. Are you serious? It was tried in 2004 and the Republican controlled Congress and Republican President and they had the sick sense of humor to call it the American Jobs Creation Act. Yeah, the AJCA didn’t create jobs, but it did provide a nice windfall for shareholders.

·         “The truth is, as Mitt Romney likes to say ‘corporations are people.’ They represent human beings acting cooperatively to be economically productive.  Each dollar earned by a corporation is a dollar that ultimately flows on one form or another to employees or to shareholders.”  By flowing to employees does Romney mean to the executives who’s compensation?  According to the Economic Policy Institute in 1965 CEO’s pay was 20X that of regular employees and by 2011 that ratio had grown to 231X.  Corporations aren’t people but they consist of people and according to Romney some are more equal than others.

Summing up the Romney tax plan is simple: he is wants to create $trillions of tax cuts for the rich and a little for everybody else.  Worst of all, he doesn’t offer any legitimate details as to how the nation can afford this.  This reminds me of school kids running for student council president and promising extra tater tots and all day recess without any way of getting it approved.  This is a pathetic plan by a man running for President of the United States, a man claiming to be a business genius, a man who offers everything but can deliver nothing.

In our next installment we will take a look at Romney’s regulatory plan.  Prepare to be unimpressed.

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