It’s the time of year when tax accountants bear only a passing resemblance to sane people. They have minor breakdowns over lack of paper clips, and major psychiatric episodes ensue if the tax software crashes. But, tomorrow is the tax deadline, so Wednesday will be a day of delight!
Even though the last thing I want to do right now is think about taxes, I have gone into the belly of the beast, and read Governor Mitt Romney’s tax plan. You can read the plan for yourself here. I’m going to split this post into two parts, one part about Romney’s plans for individual taxes, and another about his plans for corporate taxes. This first post deals with several provisions Romney has proposed for individuals. I should state the obvious here, and note that these are my personal opinions and not those of the firm I work for.
#1: Romney proposes to cut individual tax rates by 20% across the board. This would return the top tax rate to 28%, which was the top rate in 1986. This is a clear contrast with President Obama, who proposes to repeal the Bush tax cuts for top earners and return the top tax rate to 39.6%, which is what the tax rate was under Clinton. The tax policy center estimates that the top 0.1% of earners would pay more than $1 million more under Obama’s plan versus Romney’s.
Ok, let’s make clear that I have no problem with tax cuts per se. I just think that you have to be honest about how you’re going to pay for them – there is no free lunch (Likewise, raising taxes is not a panacea that solves our problems). I think the biggest problem I have with this proposition of Romney’s plan is that he says that’s pro-growth. This is linked to the failed supposition that all you have to do is lower taxes and jobs will magically be created. It didn’t work for President Bush in 2001. Romney’s plan also promises to “limit deductions, exemptions, and credits” for upper income earners. Which ones? The very popular mortgage deduction? The charitable contributions deduction? The exemptions for dependents? (those will be all popular with house-owning, tithe-paying, large Mormon families!) I’ve blogged before about how it is very hard to take away so-called “tax expenditures” – tax breaks that are popular but cost the government a lot. My fear is that Romney will cut taxes without being able to have corresponding cuts to these tax breaks. The lack of specificity is troubling, to say the least.
#2: Romney proposes to cut capital gains taxes on Americans making less than $200,000 per year and keep the rates at 15% for everyone else. My problem with this is simple: the financial crisis. This rewards people who make risky financial decisions that may destabilize the whole system. It values one type of work (financial intrigue) over the steel worker. In other words, a Morgan Stanley investment banker would pay a lower tax rate than I do on my salary. I don’t think that’s right.
#3: Abolish the “death tax.” This is another example of the Republican penchant for ridiculous names. This tax hits only those estates worth more than $5 million. The tax also provides a step up in basis, which means that when you sell those assets you inherit you don’t pay tax again. It’s a question of taxing the gain now or later, so I guess this one is just a matter of policy. I am okay with the death tax.
#4: Abolish the Alternative Minimum Tax (AMT) for individuals. This point I actually agree with. The AMT is a complex tax on top of a tax, and it’s not indexed for inflation so it hits more Americans every year. Given the rest of Romney’s individual tax plan, I feel like it’s not specific enough, or in line with my views on tax policy. I feel like it is doing nothing to help with the growing income inequality gap. You can read some more in-depth analysis of Romney's and Obama's plans here and here.
Don’t forget, your taxes are due tomorrow! A little tax humor: