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The 5 Trillion Tax cut that is not a 5 Trillion tax cuts
From the left, the mantra is that Romney tax plans represent a 5 Trillion tax cut for the wealthy. However, the mantra has now been discredited, but it won’t stop Obama from keeping the mantra going through Election Day.
The biggest problem with the left and their quite pliable allies in the media is that they fail to review Romney based on the following principles. The first principle is Romney's proposal is similar to other tax reform plans proposed by a divergent group including liberal Senator Ron Wyden, Bowles-Simpson, and Paul Ryan, now the Vice-Presidential nominee. The plans include the lowering of marginal tax rates while reducing deductions. While Obama has focused on the reduction on tax rates, he ignores the reduction of deductions as a means to increase revenues or make up lost revenues from marginal tax reduction.
The second principle also rarely mentioned in the debates is that lowering marginal tax rates will lead to an increase in economic growth and an increase in federal revenues. This is not a debatable point for the past half century, tax rate reductions have led to more revenues to flow into the Federal treasury. A review of the Reagan tax cuts, patterned after the Kennedy tax cuts, led to both economic recovery and an increase in federal revenues. When Clinton lowered capital gains taxes, a similar increase revenues from the tax reduction occurred. Over a period of fifty years, we have seen marginal tax rates leading to economic growth and increase federal revenues and these polices were enacted in both Republican and Democratic administration.
In a recent study on the principle behind the Romney Plan, Princeton Harvey Rosen noted, “In this paper, I analyze the Romney proposal taking into account the additional income that might be generated by economic growth. The main conclusion is that under plausible assumptions, a proposal along the lines suggested by Governor Romney can both be revenue neutral and keep the net tax burden on high-income individuals about the same. That is, an increase in the tax burden on lower and middle income individuals is not required in order to make the overall plan revenue neutral.” Professor Rosen observed that many of Romney's critics have acknowledge that individuals would change their investment strategy, the weakness of these critics is that they “assumes that regardless of the tax rate, people work the same amount, save the same amount, and invest the same amount. Thus, changes in the tax code have no effect on the amount of before-tax income.”
Rosen concluded that reduction of tax rates would lead to economic growth and added, “The recent debate has been more occupied with the arcana of tax preferences and how they are allocated across income classes than with the impact of economic growth. To be sure, the extent to which a program of tax reform (and regulatory reform) would actually increase growth is controversial. But that doesn’t mean it should be ignored; rather, it should be debated. Economic growth should take center stage in the ongoing national conversation over tax policy.”
Rosen makes the case that the Romney tax plans would increase economic growth and that there is no requirement that it will lead to increased tax among the Middle Class. It could be easily argued that Obama's economic plan of piling up debt will lead to increased taxes among the Middle Class, and Obamacare is already scheduled to increase taxes among the Middle Class. So the real argument is whether Obamanomics and Obamacare will lead to tax increases among the Middle Class?