The Country Thinker

Gimme! Gimme! Gimme!

Thoughts on Economics

I’ve spent most of the last two days in bed with the flu, so I didn’t get to check out either yes­ter­day or today’s Wall Street Jour­nal until an hour ago. Yes­ter­day, Obama’s lat­est tax pro­posal was head­line news, and in today’s Mitt Rom­ney had an edi­to­r­ial lay­ing out his much broader and deeper set of tax reforms.

While I agree that tax poli­cies should be part of any pres­i­den­tial candidate’s plat­form, and that taxes have an enor­mous influ­ence on the econ­omy and human behav­ior, I’m a bit puz­zled as to why the sud­den flurry of pro­pos­als right now. It’s funny how we let politi­cians and the media dic­tate to us what the “impor­tant issues” are. Remem­ber that health care reform wasn’t an issue in the 2008 pres­i­den­tial cam­paign until Barack Obama made it one. (And now it’s des­tined to be a cen­ter­piece of every elec­tion for years to come.) And who can for­get the sud­den urgency of dis­cussing “civil­ity” in our polit­i­cal dis­course in the wake of the Tuc­son tragedy?

Frankly we should have been talk­ing about taxes 15 months ago when the Simpson-​​Bowles deficit com­mis­sion offered some broad pro­pos­als, even if it didn’t pass with enough votes to make it “bind­ing.” As if any­thing is bind­ing in Wash­ing­ton… Be that as it may.

So any­how, taxes seem like the issue-​​du-​​jour, so let’s look at the cen­tral plank of Obama’s pro­posal. He wants to lower the top mar­ginal cor­po­rate tax rate to 28% while fill­ing many loop­holes. The total amount of rev­enue extracted from busi­nesses is expected to increase under his proposal.

While I agree with clos­ing loop­holes that intro­duce dis­tor­tions into the econ­omy, I am very leery of this pro­posal from the most polit­i­cal of crea­tures. My guess is he’s bank­ing that the aver­age voter gets con­fused between tax rates and tax rev­enues, so he’s plan­ning to go around tout­ing his pro-​​growth “tax-​​cut plan for busi­nesses,” even though he plans to bleed more from the cor­po­rate turnips.

Romney’s plan offers sub­stan­tially more detail, but it’s a bit mud­dled. Gen­er­ally speak­ing he pro­poses mod­i­fi­ca­tions and improve­ments to the exist­ing tax struc­tures. Some are undoubt­edly ben­e­fi­cial, such as elim­i­nat­ing the AMT and estate tax, as well as the repa­tri­a­tion tax on for­eign earn­ings. (The lat­ter is his strongest sin­gle pro­posal, in my opinion.)

But, Gov­er­nor Rom­ney falls into Obama’s class war­fare trap by elim­i­nat­ing income tax deduc­tions for peo­ple earn­ing over $200,000, but leav­ing them in place for every­one else. If the deduc­tions are harm­ful (which they are, except the char­i­ta­ble dona­tion, which (I will explain at a later date), why retain them for any­one? Or is this just falling for Obama’s “soak the rich” game?

Per­haps most con­cern­ing is the fol­low­ing cryp­tic state­ment from Romney’s editorial:

And we must still raise enough rev­enue to stop the end­less bor­row­ing that threat­ens Amer­i­can prosperity.

I recall a Repub­li­can debate in which Rom­ney held up his hand (like the other can­di­dates) and said he would not raise taxes, even if bal­anced by 10 times more spend­ing cuts. The state­ment above looks to me like he assumes tax rev­enue increases are a given to help fill the deficit hole. I’d say he’s set­ting the table for a “bal­anced approach” to deficit reduc­tion when/​if he gets the GOP nom­i­na­tion and he begins his inevitable jour­ney to the left.

Mean­while, Lib­er­tar­ian Party can­di­date Gary John­son has a rad­i­cally dif­fer­ent approach. He wants to replace the entire cur­rent tax sys­tem with a Fair Tax sys­tem. Cor­po­rate and per­sonal income taxes would be elim­i­nated, along with pay­roll taxes. The sim­plic­ity alone gives it appeal, and the fact that it doesn’t impeded sav­ings and invest­ment to the same degree as an income tax is also an enticement.

Any­how, taxes are the issue de jour, even though the pro­pos­als from the Big Two party can­di­dates are a bit mud­dled, and in par­tic­u­lar, Obama’s seems to be more polit­i­cal than substantive.