Politicians and policy makers always seem to be talking about “broadening the tax base” and “eliminating tax loopholes,” but rarely do we hear specifics.
The problem is that somebody always depends on those so-called “loopholes,” whether it’s a large corporation or a small business, a millionaire or somebody living paycheck to paycheck. In recent months, the debate over Republican presidential candidate Mitt Romney’s tax proposals has led to rampant speculation over who would be helped and harmed by his tax policies should he win claim to the Oval Office in November.
Romney has been about as forthcoming with the details of his tax policies as he has been with his tax returns. The basic message seems to be that he will tell voters what he intends to do only when he gets into office. That has led to research, much of it admittedly speculative, by think tanks like the Tax Policy Center and other tax experts suggesting that for Romney’s tax plan to work, he would have to eliminate popular tax breaks like the mortgage interest deduction, charitable deductions, and deductions for state and local income taxes, at least for upper-income taxpayers (see Romney Tax Cut Works Only When Mortgage Deduction Mostly Reduced and Romney Defends Tax Cut Plan).
Romney has adamantly argued that his plan would not lead to higher taxes for the middle class, while his Democratic opponents have countered that wealthy taxpayers would be the main beneficiaries of the lower tax rates he has proposed.
Romney, like his running mate, House Budget Committee chairman Paul Ryan, R-Wis., has been vocal about “broadening the tax base.” This was one of the goals of the 1986 Tax Reform Act, which did indeed eliminate many corporate tax loopholes, at least for a while, thereby expanding the tax base. But nowadays the phrase “broadening the tax base” is often used in conjunction with calls for more people to pay federal income taxes, with nearly half the population accused of paying no taxes at all. Of course, that’s not really true, as many of those who end up paying no net federal income taxes oftentimes do pay sales taxes, Social Security and Medicare payroll taxes and other forms of taxation. In a recently released video from a campaign fundraiser, Romney accuses the 47 percent of the population who pay no federal income taxes of not taking responsibility for their lives and says he can't worry about them.
However, those who qualify for refundable tax credits like the Earned Income Tax Credit are rightly fearful that the phrase “broadening the tax base” could mean ending the EITC as we now know it. The EITC actually was expanded because of the deal that President Reagan struck with Congress back in 1986 to get his landmark tax reform legislation passed. He was willing to trade lower tax rates for tax breaks like the EITC, which up to then had covered relatively few people since its introduction in 1975.
It would be unfortunate if the legacy of that tax reform, in which both parties managed to come to an agreement with the President (imagine that) were lost in a misguided effort to cut the deficit and taxes on the wealthy. Instead, by “broadening the tax base,” such proposals would end up eliminating tax breaks for those who are struggling the most in today’s difficult economy.
9 Comments
Regarding the following comments:
****************** You can look it up, under the Bush rates, tax revenues not only increased, but, the wealthy paid a higher percentage of the total taxes collected than under the Clinton rates. It should also be noted that under the Bush rates, the lower income people paid at a lower percentage. Tax reductions do that.
Your point about the 47%? that don't pay income taxes but pay payroll taxes and sales taxes makes no sense. Don't the higher income people pay even more of those type taxes? You ignore the fact that employers match payroll taxes paid bsdsy employees, and employers pay 100% of the unemployment taxes!
You must be a university professor? And by the way, if there is some problem with Romney's tax returns, and since we have an Obama appointee running the Treasury, let that tax cheat look into it. *******************
Allow me to correct your numerous mistakes above...
1. Bush tax rates did not provide higher tax revenues. In fact, they did the opposite. The mistake you're making is that your looking at raw tax revenue as opposed to revenue as a % of GDP. You can't compare raw tax revenue numbers because the workforce was larger under Bush than it was under Clinton (which is the primary reason why GDP increases most every year). This table might help:
http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?DocID=200&Topic2id=20&Topic3id=23
You can clearly see that revenue as % of GDP was much lower starting in 2002 once EGTRRA took effect (dropping from 19.5% of GDP to 17.6%). Bush's 8-year average was 17% of GDP. Clinton's 8-year average was 19.25% of GDP. Now, even if you focus on raw tax revenue, Clinton's revenue peaked at $2.025T in 2000 and Bush didn't manage to beat that number until 2005 which represents the longest period of time where tax revenue didn't exceed the peak in the past. IOW, nothing what you stated about tax revenue above is true.
2. I don't have a "total taxes paid by income group" table handy at the moment but the reason why the wealthy probably paid a larger % of total taxes under Bush is because their corresponding income and wealth (as it relates to capital gains) also increased considerably relative to other income groups. This is a reflection of the inequality that exists in the US. This issue has absolutely nothing to do with the Bush tax cuts as I proved in #1.
3. Yes, it is true, the bottom quintile paid had a lower average effective federal tax rate (all federal taxes, not just fed income tax) under Bush than Clinton. However, all that did was contribute to lower revenues as I again proved in #1. Btw, you can thank the Bush tax cuts due to the expansion of EITC.
4. Those other fed and state taxes that Cohn was referring to are regressive which means that higher income people do NOT pay more of those types of taxes. This is why the bottom quintile's average fed *income* tax rate is negative but their average fed tax (all fed taxes) is positive. This might be helpful:
http://ctj.org/ctjreports/2012/04/who_pays_taxes_in_america.php
The fact that employers match payroll taxes and unemployment taxes is strawman. It has nothing to do with the larger point.
5. It is true that we have an Obama appointee as Treasury Secretary but apparently you unaware that his economic policies are purely reflective of GOP principles. I suggest your read Sheila Bair's new book, Bull by the Horns, and gain some insight into Geithner's priorities. This was probably Obama's biggest mistake.
Posted by: cwhyte | November 8, 2012 3:02 AM
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Why do we not simply raise taxes across the board, while cutting unnecessary government programs, and benefits. 1% tax increase at the bottom for everybody,no deductions, graduating up to 3 % tax increase specifically, for higher earners. Since those on SS will be getting tax increases and cuts, while those on the top will be getting tax increases only, share the pain. Simple, understandable math.
Posted by: jgodiska | October 4, 2012 3:49 PM
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The answer my friends is for a smaller government. A government that cuts expenditures to stay within its means. We must demand honesty and good stewardship of the government monies spent.
All, and I mean all of the government agencies have no personal "skin" in the game. They steal through their "white collar" jobs that take (same as steal!)public money, paid in by the taxpayers, and authorize dollars for illogical expenses such as: exhorbatant salaries and benefits for themselves and their benefactors; tax allocations to political benefactors; allocations for unwarranted and dishonest employee travel; as well as for a myriad of other dishonest and at times senseless expenditures on pork barrel projects.
Posted by: mcameron@ddccpa.com | September 24, 2012 4:26 PM
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The 47 percent who do not pay federal income taxes include many of the elderly, those on fixed incomes and pensions, as well as working families who qualify for tax credits like the child credit and the EITC. The whole idea of having "some skin in the game" ignores the fact that many of these same people pay state and local income taxes.
Posted by: MikeCohn | September 20, 2012 10:33 AM
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I agree with all of the above comments that this is a very biased column. The other taxes that you claim everyone pays (SS, Medicare, sales, etc.) are either ear-marked for specific purposes or are not federal taxes. Only the federal income tax goes to pay for federal gov't services like defense and other necessary expenditures. I personally believe that everyone, even the poorest low-income or unemployed person or senior citizen, should make some contribution to essential services like defense. Perhaps the minimum amount of federal income tax could be set at $10/year, so that everyone has some "skin in the game." It is truly unbelievable that 47% of Americans pay no income tax (and we know Romney wasn't making up that figure because it's the IRS's).
Posted by: janejohn | September 20, 2012 10:24 AM
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What a terrible article! Mr. Cohn, federal income taxes are NOT social security taxes, medicare or sales taxes. This is not a stupid audience, so we can see right through your "talking points". My hubby and I are both small business owners, and we are not hiring anyone because we are afraid of the uncertainty surrounding such things as the health care act and how it will affect us, the potential impact of possible reduction of the Section 179 deduction and the huge increase in the state unemployment tax rate for the state of Illinois (almost 10% now), to name a few. ALL TAX RELATED! We are seriously debating whether or not to close his business, liquidate the inventory, rent the building and have more money left over than spending our time running the business. The only thing holding us back is the fact that we might have to put 10 loyal employees out of work.
Posted by: cherylrein | September 20, 2012 9:51 AM
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The lack of specific by Romney only give rise to speculation and questions. By everything I understand him to say, he does not want to allow the "Bush" tax rates to expire. It has been said that more taxes were paid by the "rich" during this period, but has their additional income that caused them to pay additional income taxes created jobs? NO.
It has been said that keeping the lower tax rates will create jobs, however, in my 30+ years as a CPA with most of it as CFO in industry, TAXES DO NOT HAVE ANY EFFECT ON JOB CREATION OR REDUCTION. ONLY DEMAND EFFECTS JOB CREATION OR REDUCTIONS. So why should the tax rates on those earning more than $250k or $1M not be increased.
When I was in the group earning over $250k, I was not happy about how much tax I had to pay (no one wants to pay taxes), but I certainly was more able to pay taxes then many of my employees who were earning $10-$15 per hour with a household with 2 or 3 dependents.
Romney's tax policy/proposal(?) should be looked at regarding job creation rather then should the "rich" keep the lower tax rates.
Posted by: PhilH | September 19, 2012 7:36 PM
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Your "Progressive" point of view reveals that you have a political axe to grind. If you get your way,you and your fellow "Leftists" will bring this country down. Socialism has been proven not to work every where it has been tried.
You can look it up, under the Bush rates, tax revenues not only increased, but, the wealthy paid a higher percentage of the total taxes collected than under the Clinton rates. It should also be noted that under the Bush rates, the lower income people paid at a lower percentage. Tax reductions do that.
Your point about the 47%? that don't pay income taxes but pay payroll taxes and sales taxes makes no sense. Don't the higher income people pay even more of those type taxes? You ignore the fact that employers match payroll taxes paid bsdsy employees, and employers pay 100% of the unemployment taxes!
You must be a university professor? And by the way, if there is some problem with Romney's tax returns, and since we have an Obama appointee running the Treasury, let that tax cheat look into it.
Posted by: mcameron@ddccpa.com | September 19, 2012 4:52 PM
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WRITTEN LIKE A TRUE PROGRESSIVE! WAY TO SPIN IT! THE FALL OF AMERICA WILL COME DUE TO CIVIL IGNORANCE AND BY BELIEVING THOSE LIKE YOU.
"Romney has been about as forthcoming with the details of his tax policies as he has been with his tax returns."
REALLY?
Posted by: Robert M | September 19, 2012 1:35 PM
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