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U.S. presidential elections often produce half-baked proposals. The campaign websites of President Barack Obama and Republican rival Mitt Romney are loaded with 10-point plans to reform everything from education and Social Security to energy policy.
But not their tax plans. Both offer the vaguest of nostrums for the most important issues of our day: What size government do we want? How will we pay for it? And how should the burden be fairly distributed?
Romney says he would reduce or eliminate the taxes most of us currently pay. The 2001 and 2003 tax cuts adopted under President George W. Bush? Extend them all. Individual income-tax rates? Reduce them by one-fifth across the board. Dividends and capital-gains taxes? Eliminate them for most taxpayers and keep the current low rates for those with high incomes. While he’s at it, the former Massachusetts governor would end the estate tax, repeal the alternative minimum tax, and ditch the higher tax rates enacted with Obama’s health-care-reform legislation. Here’s the cherry on top: Romney says he would offset the huge revenue losses dollar-for-dollar and still keep the tax code’s progressivity.
If it sounds too good to be true, that’s because it is. Romney hasn’t said how he would accomplish all of this and not worsen the deficit or make the tax code less progressive—probably because it’s mathematically impossible.
Obama also has a tax plan, and it’s almost as sketchy. It can be summed up as “soak the rich.” In keeping with his pledge not to increase taxes on the middle class, Obama would extend the Bush tax cuts only on income up to $250,000 for married couples. He would increase the top tax rate to 39.6 percent from 35 percent and put an end to tax breaks for hedge fund and private equity managers. Most famously, the president proposes a Buffett Rule, named after investor Warren Buffett, which would require Americans earning more than $1 million to pay an unspecified minimum tax rate.
The millionaire’s tax would affect fewer than 450,000 people. Based on 2009 figures from the Internal Revenue Service, even doubling the tax rate on the richest of the rich would bring in only about $190 billion a year, far short of the $4 trillion over 10 years that most economists conclude is needed to keep the national debt sustainable.
Just as Romney must shed his pie-in-the-sky promises, Obama needs to come clean with middle-class Americans by telling them their taxes, now at record-low rates, will need to be raised.
To read Ezra Klein on Washington's favorite tax idea and Noah Feldman on badminton and politics, go to: Bloomberg.com/view.