Editor: Paul L. CaronPepperdine University School of Law
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Thursday, October 11, 2012
By Paul Caron
Source: BackTaxesHelp.com. (Hat Tip: John Salan.)
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What's the point of comparing these plans? Romney hasn't even put forward a complete plan. Romney's (gigantic) question mark underneath 'tax deductions changes' means he has only put forth half a plan.
Posted by: A. Nomus | Oct 12, 2012 9:09:50 AM
The graphic says that the Romney plan is revenue neutral because Romney says it is revenue neutral. But everything else in the graphic suggests that it is not -- it is a huge, huge revenue loss for the government.
But Romney is appealing to the stupidity of voters. If he had said his plan is revenue neutral because magic unicorns will appear and give us the money -- would that be put in the graphic as well?
Posted by: Neutral? | Oct 12, 2012 9:55:08 AM
Romney's plan does work and this is how:
If the pool of income that gets taxed always stays the same then the only way to increase government revenues is to raise the tax rate. This I believe is what the democrats want you to believe.
However, if the pool can be expanded and therefore a larger amount of income gets taxed then the rates can decrease and the government's can remain neutral (or in times of high economic growth they can increase.
So, the question is how do we increase the pool of income to be taxed? It is expanded when three things happen:
1) The economy grows and people earn more income.
2) The ecomomy grows and people who were out of work then are able to get off unemployment benefits (a cost to government) and get a job (therefore having taxable income)
3) Limit the amount of deductions so more of your income is subject to tax.
Those three events increases the pool of income to be taxed and even when taxed at a lower rate can generate more revenues than a sluggish economy at the higher rates.
One key aspect to get the economy growing is to reduce the tax rates which provides investors with more capital to invest and it provide an incentive to expand businesses which hires more people and is more profitable.
Only when one looks at tax revenues in 2D (i.e. a fixed pie of income that is taxed) will they not be able to understand how Romney's plan can achieve exactly what he says it will.
Granted, the political risk he takes is that there probably will be a lag time (maybe 1 to 2 years) of when the growth in the economy produces higher revenues, so we may see an increase in the deficity for the 1st year or two of his term and then growth kicks in and the real recovery will begin.
Posted by: Shannon | Oct 12, 2012 2:46:26 PM
Thanks, but we cut taxes in 2003 and 2005. I'm not sure you could really say the economy that resulted was... optimal.
Also, the famous Reagan tax cuts resulted in the less widely known Reagan tax hikes, which he said (please google this) was necessary because it would be irresponsible to let a deficit develop. (Please also google the deficit when Bush II left office, after those economy-growing tax cuts).
Posted by: Liz | Oct 14, 2012 1:11:38 PM
Perhaps someone should point out that a revenue neutral tax cut is not a tax cut at all.
Posted by: Jo | Oct 15, 2012 4:48:01 AM
I love this. Libs posting about cuts being a "revenue loss" for the government. What a gas! How about this - have the government EARN money instead of stealing it from the working stiffs. Or, even better, have EVERYONE pay something instead of 47% who do nothing but take (Obama phones, Obama solar panels, Obama cars, Obama banks, Obama cash, Obama food stamps, Obama etc, etc).
Posted by: LibH8R | Oct 15, 2012 11:13:54 AM
You have to factor in more than just tax rate cuts, they are a big part of the reform but not the whole part. Along with rate cuts you also expand the base by limiting deductions and then with the private sector producers having more capital to produce the economy grows and the base broadens even more.
In addition to a reformed tax policy, the federal government almost must reform spending. A combination of all these events will lead to a more effective fiscal policy.
Tax reform (which includes tax rate cuts and limiting deductions) will provide the environment for a growing economy. Obviously there are still business cycles (ebbs and flows) and so there won't always be growth, but we need to stop tinkering with raising taxes so high that it kills incentive for private capital investment which is the fuel for the economic engine.
Posted by: Shannon | Oct 15, 2012 12:55:38 PM
It's a tax rate cut which lowers marginal rates, but with a growing economy / higher incomes then the total tax paid in revenue neutral to the government.
Posted by: Shannon | Oct 15, 2012 1:00:36 PM
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