Republican Presidential candidate Mitt Romney put forth a detailed economic plan for the country in a speech today in Las Vegas. He hopes his presentation gathers attention and translates into support on what is sure to be the number one issue in the election next year. The speech was typical political rhetoric peppered with some philosophy but was accompanied by 59 specific proposals in a later released 160 page document addressing a wide rage of topics including taxes, regulation, trade, energy production and government spending.
The President will give his version on how to promote the American economy in a speech before a Joint Session Of Congress on Thursday. Indeed the timing of the Romney speech is meant to be compared with the President. Governor Romney will no doubt be criticized for not being bold enough or specific enough. However, there is a real difference here. Romney is merely a candidate and not President and his plan contains more than I have seen from the Administration since they released their Budget nine months ago. Mr. Obama has been a master of platitudes but it is time to not only give his specifics (finally) but also produce some results or the face the souring electorate in a dismal economy.
The Romney program is worth grading, as he is a very serious and important candidate. He is well funded, articulate and brings executive experience into the debate. Some conservatives have unflatteringly portrayed Romney. My view is that Romney is a pragmatist and a realist bent more on getting the doable accomplished than drawing a line in the sand. However, as the election process has demonstrated time and time again campaigning is different than governing.
Romney proposes a number of different things and also criticizes the current course of the Administration. He points out the huge deficits, a rash of government regulation, unwarranted union influences, and a bloated federal work force. He suggests being tougher on China, promote trading relationships and trade zones and increasing supplies from multi-sources of domestic energy. However, the tax policies interest me the most.
Best to let the candidate himself lay out his policy:
“Marginal income tax rates and tax rates on savings and investment must be kept low. Further, taxes on interest, dividends and capital gains for middle-income taxpayers should be eliminated. Our corporate tax rate is among the world's highest. It leaves U.S. firms at a competitive disadvantage and induces them to park their profits abroad, benefiting the rest of the world at our expense. I will fix these problems with permanent solutions. Ultimately, I will press for a total overhaul of our overly complex and inefficient system of taxation.”
In reviewing the tax portions of his plan, the policy shapes up as follows:
• Maintain marginal rates at current levels—Romney proposes to keep the current tax rates (the “Bush” rates) and opposes any increases. The current rates for all taxpayers revert back to 2001 and 2003 higher levels if not extended. This position is standard Republican policy and no one will be nominated by stating otherwise. Romney says that ultimately tax rates will have to be decided in tax reform. However, the reality is that over the long term, everyone in this country may end up paying more taxes. He gets a B minus here
• Reduce or eliminate taxes on interest, dividends and capital gains for taxpayers with incomes less than $200,000--From a tax policy point of view this is not such a great idea. From an economic standpoint, it will not help capital formation and promote economic growth. It is merely tax-relief for taxpayers who have this type of income. It also takes the bait of the class warfare waged by Democrats by setting income levels. It makes further distinctions between investment income and wages. That is not necessarily bad in all cases but has to be viewed in the context of an overhauled tax system. I know this type of proposal is mantra to conservatives but what creates an efficient tax system is not a continuation of what we have now by carving out more exceptions. He has good intentions but gets a D here.
• Eliminate the death tax—This is a political code word for the estate tax, the revision of which has been botched by both political parties. It is actually a complicated area because it involves things like stepped-basis and other matters. Repeal of the tax will not do anything for the economy. I have no problem in taxing the estates of the likes of Warren Buffet except it is all sheltered by foundation contributions. Again, repeal of estate taxes is political manta for conservatives. He gets a C here.
• Long-term goal: pursue a flatter, fairer, simpler structure--- Great idea. Most everyone is for this but it is not really meaningful in the abstract and has to be looked at in connection with marginal rates. Again, what about the tax base? What about the tax on upper incomes? What about our sacred deductions? There are just not enough specifics. The cry for tax simplification and overall reform is welcome but again, this is not a bold idea. He gets an incomplete/B here.
• Lower the corporate income tax rate to 25 percent--- but this is not really meaningful in a broad context. However, most economists and tax professional know the marginal rate is too high and needs to come down. The United States has one of the highest corporate tax rates in the world. The overall reform is welcome but again, this is not a bold idea. He gets a B here.
• Transition to a “territorial” tax system--The United States uses a “worldwide” tax system, meaning income is taxed at the U.S. rate regardless of where the income is earned. Under this system, American companies pay the corporate tax in the host country, and when profits are repatriated back to the United States, the company pays the difference between what was paid and to that under the U.S. rate. Given the high U.S. rates, the effect is to penalize those U.S. corporations that bring their foreign profits back. This is a real issue and deserves to be dealt with. The issues of foreign tax credits and deferral are problems. He deserves an A here.
The Romney tax plan is a bit short on details and imagination. However, it is a political campaign document. It does pander to hot button conservative issues and lacks certain panache. However, all in all, not a bad effort and it does stake out understandable positions. There are clear differences between Romney and President Obama on tax issues but I do not see that his plan will make many positive contributions in the short term to economic recovery. We will see what the President suggests.