Does Romney's Math Add Up?

"We contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying

to lift himself up by the handle." -- Winston Churchill

The Obama campaign has spent a lot of time pushing the idea that Romney’s tax plan will:

• Only benefit the wealthy

• Result in more burden being placed on the middle class and will do nothing to help the poor

• Add $5-8 trillion in additional deficits

• Is a return to the policies of Bush that “created the financial mess”

I find that most of the “studies” (or in many cases, there is even a lack of a study being used) or views pushed by the mainstream media are just thinly disguised regurgitations of campaign news releases that use studies that are funded by partisan research tanks or where the methodology used is at least questionable. I prefer to use non-partisan research or reading actual government research/papers (and reading the footnotes and doing my own work) to make up my mind on where I stand on an issue. One of my favorite sites is www.taxfoundation.org. They have been around forever and do non-partisan research on taxation. They are not funded by a political PAC.

Here is a link to a summary of their recent analysis of Romney’s tax plan:

http://taxfoundation.org/article/simulating-economic-effects-romneys-tax-plan

I highly encourage you to read it. Some of the highlights:

• Romney’s tax plan would grow GDP by 7.4% over the next 5-10 years

• Private business would grow by 7.8% and the reduction in corporate tax rates (the US has among the HIGHEST in the world contrary to popular opinion) would pay for itself

• Two-thirds of the growth in GDP would go to labor income – increased work hours and work wages across the board

• Every income group experiences at least a 7% increase in income. Yes, that means wealthy people make more too. I really don’t understand why wealthy people(folks whose combined household incomes are $200K or more) are so demonized by the Obama campaign, especially since so many of his donors (like Beyonce and Jay Z, Barbara Steisand, etc.) are extremely wealthy people. Like many wealthy people, Obama’s wealthy friends create jobs, often donate more to charitable works, start and invest in corporations/businesses, and ironically most of them also hire tax consultants/advisors to help them reduce their tax liability. (I have never understood that – if they think that the wealthy should pay more in taxes…than shouldn’t they not have a consultant or advisor tell them how to pay less?) Shouldn’t we have a system where people want to and aspire to be wealthy and prosperous?

• The Romney plan would recover nearly 60% of the static cost of the tax reduction.

• “People need to be aware that each dollar of federal spending costs them several dollars in lost wages and income from saving due to the economic damage from the taxes imposed. In the case of the Romney tax plan, each $1 of lost government revenue would raise incomes by nearly $8. Would the public be willing to trade a $1 reduction in government spending for an additional $8 in personal income? Some elements of the Romney plan yield even higher benefits to the public, raising incomes and employment with no cost, and some benefit, to the federal budget, and actually help to pay for the other tax reductions.”

• “The Romney tax plan is very nearly as powerful as the Kennedy tax cuts that were phased in between 1962 and 1965. The Romney plan is as strong in lowering the service price of capital, mainly due to its 10 percentage point cut in the corporate tax rate. The Kennedy cuts included a four point reduction in the corporate tax rate, a 7 percent investment tax credit, and faster depreciation write-offs. The Romney plan’s 20 percent across-the-board individual cuts are of the same pattern as the roughly 20 percent across-the-board Kennedy individual income tax rate cuts. The Kennedy tax cuts were not paid for with tax offsets (base broadeners) but were accompanied by some spending reductions. The economy surged following the Kennedy cuts, “broadening” the tax base through economic growth and employment gains, which is the best kind of base broadener there is. The federal deficit was significantly lower in 1965 ($1.4 billion) than in 1961 ($3.3 billion) before the tax cuts began to take effect.”

• “By contrast, the Johnson 10 percent Vietnam War surtax on individual and corporate income between 1968 and 1970 helped to trigger the 1969-1970 recession. The deficit fell but at a steep price in lost jobs and falling incomes.”