Wednesday, May 20, 2015

The Republican Tax Trap And The Only Way Out

"In 2012, Mitt Romney made a promise that would come back to haunt him: that he could cut federal income tax rates by 20 percent across the board; eliminate enough tax deductions and credits to do this without increasing the deficit; and not raise taxes on people making less than $200,000. The problem for Mr. Romney was that the math didn’t work. ... There are a few ways the 2016 Republican candidates can avoid the Romney middle-class tax trap. They can break with party tradition and abandon the position that there should be significant tax-rate cuts for top earners. They can forthrightly defend the idea that people with low and middle incomes should pay more. They can abandon the promise of revenue neutrality — so a tax cut for the rich does not need to be offset by tax increases elsewhere. They can be as vague as possible. So far, we have seen contenders use all these options except the first." The New York Times

The flat tax relies on bad economics and bad politics. "Implementing a revenue-neutral flat tax on consumption would almost certainly benefit households with a large amount of investment income more than middle-income households that rely on wages. Whatever enthusiasm voters might have for the flat tax in theory might quickly evaporate in a campaign, when opponents of the flat tax will point out that it will greatly reduce the tax burden on (say) people like Mitt Romney. ... Republicans should put Earned Income Tax Credit expansion and other measures to improve work incentives for low-income households at the heart of their tax-reform agenda. When Republicans debate lowering the top rate of tax with Democrats, they lose. When they emphasize tax reforms that encourage work and that help middle-income families climb the economic ladder, they win." National Review.

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