Back in January 1983, the Wall Street Journal published an editorial with the headline ”Finally, a Tax Cut,” referring to how the bulk of President Ronald Reagan’s tax reductions didn’t kick in until that year. It was as much an expression of relief as satisfaction.
Well, “finally a tax cut” plan from Mitt Romney. Oh, sure, Romney’s original plan did call for cutting corporate tax rates and capital gains tax rates for middle-incomers. It also called for abolishing the death tax. A nice start, but not nearly bold enough for a nation facing the sorts of economic challenges that America does.
Romney 2.0 goes the full Reagan. The plan’s centerpiece: An across-the-board tax-rate cut of 20 percent, returning the top rate to 28 percent, where it was when Reagan left office in January 1989. In addition, the tax rate for people in the lowest income bracket would drop to 8 percent from 10 percent, and to 20 percent from 25 percent for those Americans in the middle, according to the Wall Street Journal.
And how would Romney pay for the tax cuts? Well, the revenue would come through a combination of faster economic growth and new limits placed on deductions, exemptions, and credits—particularly on higher-income Americans. Indeed, if you are going to cut the corporate rate to 25 percent, as Romney proposes, then you really need to get top marginal rates in that ballpark, too, to avoid avoid creating distortions leading to tax shelter mania. (The Obama White House ignores this in its new corporate tax plan. Team Obama would lower the corporate rate to 28 percent, leaving a huge gap with the 40 percent top marginal individual income tax rate it also wants.)
Is the Romney plan as bold and aggressive as those proposed by Rick Santorum (two individual rates, 28 percent and 10 percent, along with a 17.5 percent corporate rate) and Newt Gingrich (a 15 percent flat income tax, 12.5 percent corporate tax, zero investment taxes)? Certainly not, though it remains to be seen how Romney would alter the vast tangle of tax preferences cluttering up the code. But Romney’s plan would have a much better chance of actually being enacted by the next Congress if he becomes the 45th president of the United States. So Romney should get points for realism.
But part of me wishes Romney would have listened a bit more to economic adviser Glenn Hubbard. In a recent Financial Times op-ed, Hubbard proposed a progressive consumption tax which would “drastically” lower tax rates on dividends and capital gains, along with equalizing the tax treatment of debt and equity. Instead, Romney would leave investment taxes at 15 percent for upper-income taxpayers, while eliminating them for families with an annual income below $200,000. Increasing the child-care tax credit would have been another intriguing option.
(Interestingly, Romney might pay more taxes under his own plan. Hubbard told the WSJ that Romney would direct his Treasury secretary—which might be Hubbard himself—to determine if some part of “carried interest” income from investment funds like Bain Capital should be taxed at regular income tax rates rather than at lower capital gains rates.)
Yet take a step back and consider the following: Romney wants to a) slash income tax rates by 20 percent, b) lower corporate tax rates by 30 percent while slashing corporate welfare, c) reform Social Security by gradually raising the retirement age and indexing benefit growth for higher-income retirees to inflation instead of wages, d) create a premium-support Medicare system for younger workers, and e) cut government spending by $500 billion during his first term. If Romney does become the Republican nominee, he would certainly be running on the boldest GOP agenda since Reagan ’80, maybe ever.
