How Romney would tax us

By David Cay Johnston
February 7, 2012

With so much attention placed on Mitt Romney’s verbal blunders, much less has been given to his written plans for the economy and taxes.

The Republican frontrunner’s 160-page “plan for jobs and economic growth,” which he released in September, contains some sound ideas. He would encourage more Americans to save and invest. And one of his proposals would strengthen America’s status as a technological powerhouse. See the plan here.

But there’s a side to the plan that would raise taxes on the poorest 125 million Americans while tilting tax cuts further toward the rich.

President George W. Bush cut taxes for almost everyone who paid income taxes. Romney would make the Bush tax cuts permanent. But that’s only a first step.

He would also raise taxes on poor families with children at home and those going to college. Romney does this by reducing benefits from the child tax credit and the earned income tax credit and by ending the American Opportunity tax credit for college education.

Without these tax breaks, the poorest fifth of taxpayers would pay $157 more in taxes in 2015 than under current policy, the Tax Policy Center says in its analysis of Romney’s plan. The second poorest group would pay $82 more, according to the center, whose past work has been praised by Republicans and Democrats alike.

TAX CUTS

While Romney would make these two groups — the poorest 125 million Americans — pay higher taxes, the top 60 percent all would get tax cuts. The top tenth of one percent would save, on average, $464,000 a year, the Tax Policy Center’s analysis says.

His plan gives one third of his tax cuts to the top tenth of one percent of taxpayers. By comparison, Bush gave this group only one eighth of his cuts.

Romney would also eliminate estate and gift taxes, a policy that I believe would damage the spirit of striving that has served us so well until now, replacing it with a new era of dynastic wealth.

Romney’s campaign did not answer specific questions about his tax proposals, referring me instead to the plan itself.

On the more positive side of the ledger, Romney’s plan would let households earning less than $200,000 a year collect capital gains, dividends and interest tax-free. That would encourage more Americans to build cash nest eggs and to own stocks and bonds above and beyond their retirement plans.

Unlike today, when a shrinking minority of Americans has savings accounts and bonds, in the 1970s a majority earned interest. Back then, a couple could collect $400 of interest and dividends tax-free.

Romney’s plan would give unlimited tax-free interest, dividends and capital gains to about 98 percent of households. (I have recommended the same tax break be given to everybody, but with a $1,000 cap, twice that for married couples, on tax-free capital income.)

NO TAX BREAK

Given the news coverage of the low tax rate Romney paid in 2010, and expects to pay for 2011, people could easily assume he would get a huge tax break under his own plan. That is not the case.

Under his plan, high-income taxpayers would continue to pay 15 percent on their capital income, about the same rate Romney paid in 2010 and expects to pay for 2011.

As a taxpayer, Romney would do much better under rival Newt Gingrich’s tax plan. Gingrich would let everyone collect capital gains, dividends and interest tax-free. Had that been the law in 2010, Romney’s tax bill would have been cut by at least 97 percent, my calculations show.

Another provision in Romney’s plan would be to raise the ceiling on the number of visas issued to holders of advanced degrees in math, science and engineering who have job offers in those fields from U.S. companies.

While this seems like a smart idea, it does have a downside. Software engineers and others already complain that foreign workers on visas are depressing their wages, and Romney’s plan would likely make it worse. But employers will love it.

Romney, whose father was born in Mexico, would also let foreign-born students stay in the United States, provided they earn advanced degrees in engineering, math or science. And he would open the doors to wealthy people because he believes they are “job creators.”

Those last two provisions seem very smart. It is also exactly what happens in Canada, where one in five Canadians is an immigrant.

These are serious issues with potentially far-reaching implications. This is what the media should be examining, instead of verbal trivia from the campaign trail.

PHOTO: Republican presidential candidate Mitt Romney speaks at a campaign event at an RV dealer in Loveland, Colorado February 7, 2012. The Colorado caucuses take place today. REUTERS/Rick Wilking

22 comments

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why would anyone then buy a tax-free bond if they pay no tax on interest earned on normally taxable bonds? how devastating would that be to municipalities already in the red? romney’s plan is just another trickle down scheme that merely makes the rich richer and everyone else poorer. what’s new in his plan that hasn’t been tried before and failed miserably?

Posted by jcfl | Report as abusive

I would be interested to see his policy’s effect without the reduced credit for children. While giving poor families extra money to help raise children is good, it has unintentionally encouraged those who can least afford children to have the most of them. Other than that, it would seem to be a decent deal for the lower quintiles.

As for immigrants…they have been shown time and again to be far more likely to start small businesses. Besides, much better to have the labor come to the US and work where we can tax it, than to have the jobs go to the labor (which they will).

Only really disappointing thing is the removal of the inheritance and gift tax. Considering estate tax only applies to amounts over 5 million, its shameless pandering to the ultra rich.

jcfl — muni bonds are only tax free because its become politically impossible to remove the obscure provision that created this loophole in the first place. And yes, its a loophole, granted a well known one. Oh and guess who buys munis? Trust funds for the ultra rich. They’re expensive and volatile so ordinary people stay away from them. I don’t have much sympathy for municipalities that have such disastrous budgets that no one else will buy their bonds.

Posted by CapitalismSays | Report as abusive

I do like the fact that there would be no taxes on capital gains, interest and dividends for lower income earners. But I would rather have a gradual phaseout from 0% to regular income tax rates on capital gains, interest and dividends seeing as how the most wealthy americans use this loophole to pay such little in taxes. Not that I fault them for doing so, I would do the exact same thing if I were in their position!

-PF Pro
http://www.yourPFpro.com

Posted by yourPFpro | Report as abusive

Romney’s tax plans as described here sound like “Bush on steroids.”

Posted by DisgustedReader | Report as abusive

Well written examination of Romney’s tax plan, considering the venue you have to work with.

If Romney is elected it does not bode well for the future of this country.

I agree that “This is what the media should be examining, instead of verbal trivia from the campaign trail”.

PseudoTurtle
CPA/MBA

Posted by Gordon2352 | Report as abusive

“Considering estate tax only applies to amounts over 5 million, its shameless pandering to the ultra rich.”

Not true, not true, not true, not true!

Ok, I have to speak up here. The estate tax/death tax/inheritance tax or whatever you choose to call it has had a significant impact on me and my family without applying to our income or anything we own. Our landlord passed away, leaving the house (I don’t know what else was left as well) to his children. The tax on this property was so high that they could not keep it with us as renters and were forced to sell it. Because of that, we lost our home. This was also well before the housing bubble burst. We live in the SF Bay Area, but we are not ultra rich. We were forced to buy a house at what we now know to be a bubble inflated price and now are six figures underwater. However, even if we were misinformed about the value of the property as many were leading up to the real estate burst, we were responsible enough to have everything in a place where we can still make all payments needed. However, because of THAT, we also cannot qualify for any assistance. All of this loss of our money and equity was triggered initially by the estate tax. Plenty of other things added into it, certainly, but don’t make like the tax has no impact on anyone except the “ultra rich”. I’m sure my story is not so unique.

Posted by Zombi9678 | Report as abusive

What some of you do not realize is that this is dollars “from where they pay now”. Poorer Americans use all the services that taxes pay for at a higher rate than wealthier Americans (not the richest 1% which is getting all the subsides to their businesses though). We (folks who work hard and smart) are being robbed. There should be no free rides and that is what the poor are getting. While I got you we need to tax capital gains as income and lower the other rates.

Posted by keech | Report as abusive

It is kind of funny that Gingrich (who himself has been paying twice the tax rate of Romney) would cut Romney’s tax rate to 0.
The Obama campaign is going to be hammering Romney on tax rates all summer. The only way for Romney to get out from under it will be a tactical retreat to a 35% top rate on everything (earned, unearned, estates).
But I guess Romney needs to first lock up the nomination before he can start tacking towards the center.

Posted by beowulf_ | Report as abusive

So let me get this straight. If you quit handing out money that by your definition is a “tax”.
In economics you give money for what you want more of, and tax what you want less of.
Being poor should be a short term situation. Unfortunately, in this country poverty is a “job”.

I had a secretary quit to have a child out of wedlock, because she could make more money with a child, not working. Do you think that was a good decision for her, her child or society.
End welfare as we know it and make it charity with a time frame and a way out of poverty, not a life time plantation for the democratic party.

Posted by cesplin | Report as abusive

Great breakdown of conservative tax policy, only problem is that a majority of the population either can’t understand or refuse to understand the facts. So long middle class…hello master class.

Posted by ProfMagyar | Report as abusive

Mr. Johnson,
Some of your logic seems flawed. You say eliminating estate and gift taxes would ‘damage the spirit of striving’ and create an era of dynastic wealth. How so? If my estate no longer pays an estate tax, all I have striven for can pass to my heirs. It doesn’t limit my striving in any way. Gift taxes penalize the recipient. Do they strive less as a result of receiving a gift? I think not. Unless the gift comes year after year after year. You know, like welfare, food stamps and unending unemployment benefits.

Posted by wildbiker | Report as abusive

@wildbiker

I think it’s pretty clear that the author is talking about the heirs’ motivations, especially with estates large enough to last generations. The children won’t need to strive for anything; it’s all simply getting handed to them. As long as they aren’t criminally stupid with the money they can simply live on capital gains and then hand it on to their children to repeat the process… dynastic wealth.

Not that the estate tax does anything about this. Romney still got to leave his kids 100 million without them paying a dime…

Posted by spall78 | Report as abusive

If you are talking strictly about income taxes then I think the poor have to pay more. And by more, I mean they should pay zero in income taxes but they should not be getting refunds greater than what they have paid in. There is rampant fraud whenever you are handing out free money. EIC, First Time Homebuyers, etc. Factor in the refundable child tax credits and the state EIC and it is not unusual to see a client making $16k get a $7k refund if they have two kids. And people know how to work the system inside and out.

Posted by curleybrothers | Report as abusive

Now if only the masses could read or would be interested in this article but they prefer the next idol on TV.

Posted by vippy | Report as abusive

@jcfl….yea, screw the “trickle down” – turn on the damn spigot, I’m entitled to handouts and freebies and I want them now!

Posted by jaham | Report as abusive

The estate tax epitomizes the most American of virtues.: ‘Poppa may have, Momma may have, but blessed is the child who has his own.’ Through no fault of his own, Romney wouldn’t understand this. We can’t afford the anymore dynasty’s in the White House. Obama2012!

Posted by JulsMan | Report as abusive

This is my observations and opinion.
I know this is revolutionary, but the problem is not caused by the volume of money taxed but the velocity of money taxed. Right now companies and wealthy individuals are not spending their money. It is not to their advantage to, so trade slows. It goes back to the notion that a dollar in and of itself has no value but as a standard unit of trade. This is basic stuff, Wealth of Nations. I love when the talking heads with all the letters behind their names get lost in the minutia but ignore the glaring huge problems. There are a few rules that need to be applied and the economy would go back to normal cycles. Stability and consistency creates confidence. Regulation costs time, money and other resources that may not offset the value of the regulation. Remember that most of the Economy consists of small businesses and households. It is not glamorous to right papers or news flashes about, but it is the major portion of what moves this country and economy.

Posted by Nickolide | Report as abusive

Indirectly, the presence of the estate tax on taxable but more modest estates also encourages the use of college trust funds which represent an investment in young people. Without the tax penalty to motivate establishment of these trust funds or depletion of estates through charitable giving, more of the moderately rich would simply hold their money.

Posted by brecht | Report as abusive

The estate tax has never achieved its intended goal, other than to raise revenue. There is no historical proof that great wealth creates a dynasty that will last. The best example is the the Rockefeller and Kennedy Families. The fortunes are gone in a few generations. Big deal. The rule of the family run business (fortune)is the founder had 110% of the knowledge to manage with, the second generation 50%, and the third generation 25%. The third generation runs the business into the ground. The only generation that I am aware of that has ever added to the family fortune, is the Bass Family of Fort Worth, TX. It would be had to place a value on what they have contributed to the community.

Posted by gordoncpa | Report as abusive

“I had a secretary quit to have a child out of wedlock, because she could make more money with a child, not working. Do you think that was a good decision for her, her child or society.
End welfare as we know it and make it charity with a time frame and a way out of poverty, not a life time plantation for the democratic party.”

Or maybe you could, you know pay her more than welfare would.

Posted by MrCoy | Report as abusive

I just agree with Johnston , Even we should manage our tax according to him to get more benefits from our money with http://www.californiamortgagedirect.com/

Posted by stevenmour | Report as abusive

Every year, 50% to 80% of all created money goes into the pocket of the richest 10%.

Every year, all those hundreds of billions created out of thin air makes the rich richer and the poor poorer (via inflation and wage stagnation).

Let’s see how long this can last. It had never lasted more than a few hundred years.

Cutting taxes for the rich and raising taxes for the poor will merely accelerate the inevitable.

Posted by siinging | Report as abusive