The tax proposals of Barack Obama and Mitt Romney serve as alternative visions for the nation. Obama’s stifles growth through higher rates on the productive and pays lip service to “fairness” and “fiscal responsibility.” Romney’s enables growth and builds upon the Bush tax cuts of 2001 and 2003. While Romney should have gone further, his plan is far preferable to Obama’s.
The devil, as they say, is in the details. The Leftmedia trumpet Obama’s plan to cut the corporate rate from 35 percent to 28 percent — still above the world’s average rate of 25. Yet his plan would merely move the U.S. from the second highest corporate rate in the world to the fourth highest — with fewer deductions and new penalties to boot. For example, Obama would require for the first time that U.S. companies pay a minimum tax rate on any foreign earnings. His plan also distorts the playing field by favoring some industries over others he doesn’t like. Overall, the administration says that American businesses would pay $250 billion more in taxes. It’s important to note, however, that corporations don’t pay corporate taxes; consumers and employees do through higher prices and lower wages.
By comparison, The Wall Street Journal reports, “All the Republican presidential candidates have called for lower corporate tax rates. Mitt Romney proposes reducing the top rate to 25%. Rick Santorum proposes a 17.5% general corporate tax rate and zero rate on manufacturers. Ron Paul proposes 15% and Newt Gingrich 12.5%.”
The real economy crusher, however, could be Obama’s proposal to raise the tax on dividends from 15 percent to a staggering 44.8 percent. This money is first taxed as profit at the corporate rate before it can be paid in dividends, making the effective tax rate on this money more than 64 percent. Also, by tripling the dividend rate, many corporations will simply stop paying dividends as they did in the 1990s when the rate was roughly twice that on capital gains. Republicans cut both rates to 15 percent in 2003, and by 2006 dividend income had more than tripled. Obama’s plan wouldn’t just hurt the “rich,” as the White House would lead us to believe. More than 100 million people are shareholders in the market, and three-quarters of dividend payments go to retirees or near-retirees. These tax increases would make everyone poorer.
Romney’s tax plan is quite different. It has five points: reduce marginal individual income tax rates across-the-board by 20 percent; reduce the corporate rate to 25 percent; maintain the 15 percent rate on capital gains, interest and dividends for those earning more than $200,000 per year, while eliminating it for everyone else; abolish the death tax and the Alternative Minimum Tax; make the changes permanent, thus bringing much-needed stability to the tax code.
There is good and bad to his proposal. The bad is that Romney is still somewhat bound to the classism of the Democrats. For example, why play by their rules with capital gains or five individual rates? It’s good that lower rates apply to everyone, though. The current top individual rate of 35 percent, which is set to skyrocket in 2013 to 41 percent (including the Democrats’ surtax on the wealthy), would fall to 28 percent, the 33 percent rate to 26.4 percent, the 28 percent rate to 22.4 percent, the 25 percent rate to 20 percent, the 15 percent rate to 12 percent, and the 10 percent rate to 8 percent. Marginal rate cuts are by far the most economically effective tax cuts, but we would like to see fewer and even lower rates. The corporate rate should go lower, too. Flat or Fair tax, anyone?
Permanently eliminating the estate, or “death,” tax — often at least the third time that money is taxed — is a great idea, as is casting the Alternative Minimum Tax on the ash heap of history. Also, making these changes permanent could do as much good for the economy as the rates themselves. As an aside, the proposal is good for Romney’s candidacy because it gives him something to campaign for instead of merely citing his biography or attacking his opponents.