RPT-COLUMN-Romney & Ryan on Tax: David Cay Johnston

Fri Sep 7, 2012 3:14am IST

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By David Cay Johnston

Sept 6 (Reuters) - Together Mitt Romney and Paul Ryan have put human faces on how the super-rich game the tax system to pay less, pay later and sometimes not pay at all. Both want to expand tax favors for the already rich, like themselves.

Their approach favors dynastic wealth with largely tax-free (Romney) or completely tax-free (Ryan) lifestyles, encouraging future generations of shiftless inheritors. What we need instead is a tax system that encourages strivers in competitive markets, not a perpetual oligarchy.

Romney and Ryan say that lowering tax rates and reducing or eliminating taxes on capital gains and dividends, while letting huge fortunes pass untaxed to heirs, will boost economic growth and mean prosperity for all.

We already tried parts of that, starting with Ronald Reagan in 1981 and doubling down with George W. Bush in 2001. Empirical result: Flat to falling incomes for the vast majority, weak job growth, but skyrocketing incomes for the top one percent of the top one percent, including Romney.

Romney, shifting the Republican focus away from red ink budgets, wants to slash income tax rates by 20 percent. Ryan has called for a 10 percent rate for married couples on the first $100,000, 25 percent above that. The details of both plans show they primarily benefit the highest paid and already rich, as multiple independent examinations have documented.

Romney also wants to greatly increase dynastic wealth by eliminating the estate tax, which I believe would have a devastating effect on future economic growth, entrepreneurship and social stability.

His plan would retain the gift tax, but it is already so porous that, as Reuters reported in January, the five Romney sons enjoy tax-free income from a $100 million trust fund on which no gift taxes were paid. Only about $2 million could have originally gone into the trust without triggering gift taxes.

SLASHING TAX RATES

Under Romney's plan your economic future would be determined the same way it was in 18th Century France - primarily by who you picked as your parents, not by hard work, perseverance and that illusive element of luck.

Romney also wants to slash middle class spending programs, but despite issuing a 160-page plan () he has not said just what he wants to cut or eliminate, asking voters to buy a pig in a poke.

Slashing tax rates, keeping the share of income taxes paid by the top unchanged and increasing military spending without any additional red ink may win votes from innumerates, but it is a mathematical impossibility. What is a mathematical certainty is that Romney would cut taxes on the rich and that everyone below the top would get a lot less back in services from the government.

The Romney tax plan is Bush II on steroids. The Paul Ryan plan is Romney supersized.

Ryan wants to lower Romney's own remarkably low 13.9 percent 2010 federal income tax rate to almost nothing - and it would be nothing if Romney passed up lecture fees.

That is because Ryan's 2010 "Roadmap for America's Future," would make capital gains, dividends and some other capital income tax-free. In April, 235 of 241 House Republicans voted for a new Ryan plan cal led "The Path to Prosperity" that obfuscated on taxes.

Nice deal for the already rich, not so much strivers and the vast majority who will never be able to live large on capital flows, taxed or not.

More than $21 million of Romney's 2010 income of $21.6 million would be untaxed under Ryan's 2010 plan.

Ryan now speaks for Romney's version of reduced taxes on capital, but Ryan's spokesman confirmed that Ryan's goal remains making dividends, interest and capital gains tax-free for everyone. If Ryan's plans become law then what little income Romney earns from speeches and other work could easily be wiped out through leveraged real estate investments and other tax favors Congress already bestows on investors.

Ryan poses as a tax-cutter, but his forthright 2010 plan () would raise middle class tax burdens by half, as we shall see....

RICH GET RICHER

Hardly anyone in America knows more about how to avoid taxes than Edward Kleinbard, who spent decades as a tax lawyer finding creative ways for clients to defer or escape their obligations. He has been doing penance by exposing tax perfidies, from 2007 to 2009 as chief of staff for Congress's Joint Committee on Taxation and since then as a tax law professor at the University of Southern California.

Kleinbard shows Ryan would turn individual and corporate income taxes into the equivalent of two large payroll taxes with the burden falling almost entirely on workers, not owners and executives.

The Roadmap "is a mechanism for redistributing tax burdens down the income scale," Kleinbard wrote. ()

"Most ordinary Americans would see their tax burdens increase by around 50 percent," he concluded, "while the most successful individuals would see reductions in their labor income tax rates, and elimination of all capital tax burdens - including the elimination of the gift and estate tax."

Every independent and credible tax expert whose reports I have read, as well as my own analysis, reaches the same basic conclusions about the Romney and Ryan vision: lower taxes for the already rich and highly paid; heavier burdens on the middle class along with cuts in government services.

The Romney campaign told me it pays no heed to analyses by the Tax Policy Center(), even though Romney cited its work when it favored him in the primaries. The nonpartisan center is led by Donald Marron, a former economic official in the administration of Republican President George W. Bush.

The Romney campaign wrote me that the center's latest analysis is unfair and incomplete and "it's written by a former OBAMA staffer (Adam Looney)."

I checked. Turns out Looney, listed last among three authors, was a Federal Reserve economist detailed to the White House Council of Economic Advisers because of his technical expertise. Looney is a technocrat, not a political operative.

Looney told me he has never participated in any political campaign "and I am not sure I am even registered to vote."

Attacking Looney's, and the Tax Policy Center's, integrity is a low blow. It is also a way to divert attention from the merits, or lack thereof, in the Romney and Ryan plans.

And while not intended this way, those plans make the case for fundamental tax reform that honors the time-tested - and therefore profoundly conservative - principle of making those who gain the most from society bear the heaviest burden. Romney and Ryan would shove that burden onto those with less, a radical plan by an oligarch and his partner in promoting tax-free living for the richest Americans.

FILED UNDER:
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Comments (2)
reasoninMN wrote:
How does maintaining a large estate tax foster economic growth? I have never heard such a thing. So, we must rely on deaths and the taxes that occur on estates after their owners pass in order to drive this economy? I do not think this is what the founders had in mind.

Sep 07, 2012 7:22pm IST  --  Report as abuse
Devany wrote:
Today half the country has only $3 for every $10 they had in 1995.

The main cause of inequality and persistent high unemployment is the tax code and the job killing payroll taxes which have made the recovery from the Great Recession more difficult than the recovery from Great Depression. The solution is not more taxes or even higher taxes but rather an expanded tax base. The payroll taxes need to be replaced with a 2% net wealth tax on assets less liabilities (excluding $15,000 cash and retirement funds). Using a better and broader net wealth tax base stimulates growth in three ways:
1. Business has 7 1/2% of payroll to hire more workers
2. Workers have 7 1/2% more take home pay for much needed consumer spending to stimulate the economy
3. The wealth tax also serves a negative reinforcer (as in “use it or lose it”) which encourages productive investment of assets (trillions of dollars are now idle)

When a net wealth tax is used in a revenue neutral tax reform (and not just levied against the rich on top of progressive income taxes) it permits the income tax rate to be flattened for all and it makes capital gains, estate and gift taxes unnecessary. When combined with the elimination of tax expenditures (“loopholes”) it is actually possible to reduce the income tax rate down to 8%. The low income tax rate enables a high rate of return and further encourages necessary risky investments and innovation. The elimination of capital gains enables an investor to sell off old less productive assets and invest in the best business opportunity possible. The low rates and elimination of capital gains work in combination to further stimulates productive business growth. The process relies on sustainable tax incentives without any government spending or interference.

The final piece in the 2-4-8 Tax Reform is to use a 4% VAT to reduce the corporate income tax rate to 8%. This amounts to near business tax perfection in an environment where international trade is critical. The United States is the only developed country in the world without a VAT and that is the only reason our corporate tax rates are so high. A low corporate tax rate also enables the return to the U.S. of several trillion dollars in corporate profits which are tax deferred until the money is returned to the U.S.

Read more about the 2-4-8 Tax Blend at TaxNetWealth.com.

Sep 08, 2012 11:02pm IST  --  Report as abuse
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