It’s interesting, at this juncture just after the third debate—on foreign policy—to look at the proposals the two Presidential candidates have for personal taxes and personal tax reform (yes, yesterday’s debate and tax policy have little to do with each other, but never mind about that).
The Wall Street Journal provided a description of Republican Presidential Candidate Mitt Romney’s proposal. Against a backdrop of an across the board rate cut of 20% (along with a reduction in the top business tax rate from the current 35% to 25%), Romney is proposing a cap on the total value of the deductions and credits an individual or family might take.
During the first Presidential debate, Romney proposed
What are the various ways we could bring down deductions, for instance? One way, for instance, would be to have a single number. Make up a number—$25,000, $50,000. Anybody can have deductions up to that amount. And then that number disappears for high-income people.
He repeated the concept in early October, suggesting a $17,000 cap with higher income people perhaps having a lower cap.
In the second debate, Romney again put forward his concept.
I’ll pick a number—$25,000 of deductions and credits, and you can decide which ones to use. Your home mortgage interest deduction, charity, child tax credit, and so forth, you can use those as part of filling that bucket, if you will, of deductions.
Of course Progressives and the NLMSM want yet more specificity, and Romney declines to provide it. In the first place, it doesn’t get much more specific than a cap—no particular deductions or credits are on the table for elimination, so there’s nothing about which to be specific there. In the second place, Romney acknowledges that there are, also, other
ways to reduce deductions that in any case would have to be negotiated with Congress.
This is quite a different approach to Obama’s concept of negotiation.
Why a cap, rather than eliminating outright several of these market distorting deductions and/or credits? Each taxpayer would pick and choose the deductions and credits that are of value to him in his particular circumstance, in a particular year. Thus, these deductions and credits would compete with each other for inclusion. What a concept: competition and individual choice. And we’d be accumulating empirical data about which deductions and credits really do have value for us taxpayers. But those are anathema to Progressives, whose raison d’être would disappear the moment their dependents don’t need them anymore.
Moreover, this competition, coupled with the generally lower tax rates, would reduce the degree of market distortion that each deduction causes.
The cap also preserves, for now, the degree of progressivity in our tax code that in itself is market distorting, yet is politically necessary to get any reform be passed in today’s DC environment. See the table below.
Notice how, under the current system, the average total of deductions and credits rises with income. The Progressives’ evil rich would bear the brunt of the effect a deduction cap. And middle income Americans wouldn’t feel the cap at all.
Set in apposition to Romney’s proposal is Democratic Presidential Candidate Barack Obama’s tax plan. We’ve seen his idea at the link above: raise taxes on those Americans whom he despises. And for what purpose? Not to pay down our national debt or even to reduce the Federal budget deficit. No, Obama intends to use his tax increase to transfer funds to his favored Americans—union, and so-called green energy, cronies who will then fund his political power. And he’ll use the monies to fund the rapidly increasing spending for which he called in the last two budget proposals he sent to Congress.