We were not very hopeful that the Democratic National Convention (DNC) in Charlotte would be any more enlightening about tax policy than its Republican counterpart in Tampa. In a previous post we criticized the drafters of the Democratic platform for tripping over themselves to celebrate tax cuts and failing to say much about finding new revenue beyond allowing the Bush tax cuts to partially expire for the richest two percent of Americans.
But the DNC turned out better than we expected. It wasn’t just Obama’s mocking the GOP stance on taxes and smaller government (deservingly) as a cure for everything: “Feel a cold coming on? Take two tax cuts, roll back some regulations, and call us in the morning.” Several DNC speeches were surprisingly specific and brought to light some important issues. The following are some highlights.
Governor Romney believes that in the global economy, it doesn’t much matter where American companies put their money or where they create jobs. As a matter of fact, he has a new tax proposal — the “territorial” tax — that experts say will create 800,000 jobs, all of them overseas.
Biden was citing a study estimating that adoption of a territorial tax system by the U.S. would create 800,000 jobs overseas, and that during a recession those jobs would likely come at the cost of U.S. jobs.
There are many, many reasons to oppose a territorial tax system, which would essentially exempt the offshore profits of U.S. corporations from U.S. taxes. We have explained in a fact sheet and in a more detailed report that a territorial system would increase the already significant incentives for corporations to move operations (and jobs) offshore, or to just disguise their U.S. income as foreign income by using complex transactions involving tax havens.
We have a big debt problem, we got to reduce the debt, so what’s the first thing he [Romney] says he’s going to do? Well, to reduce the debt, we’re going to have another $5 trillion in tax cuts, heavily weighted to upper-income people… Now, when you say, what are you going to do about this $5 trillion you just added on? They say, oh, we’ll make it up by eliminating loopholes in the tax code. So then we ask, well, which loopholes, and how much? You know what they say? See me about that after the election…
This is the defining feature of Mitt Romney’s tax plan — he simply refuses to tell us which loopholes he would reduce or eliminate to make up the cost of his 20 percent reduction of personal income tax rates and the other new breaks he proposes. This makes it impossible for organizations like Citizens for Tax Justice and the Tax Policy Center to say exactly what the impact will be on different income groups — and we’d be naïve if we didn’t think this was intentional.
Clinton went on about the three possible ways Romney would have to fill in the details of his plan.
One, they’ll have to eliminate so many deductions, like the ones for home mortgages and charitable giving, that middle-class families will see their tax bills go up an average of $2,000, while anyone who makes $3 million or more will see their tax bill go down $250,000. Or, two, they’ll have to cut so much spending, that they’ll obliterate the budget for national parks, for ensuring clean air, clean water, safe food, safe air travel. They’ll cut way back on Pell Grants, college loans, early childhood education, child nutrition programs… Or, three… They’ll go and cut taxes way more than they cut spending… and they’ll just explode the debt and weaken the economy.
Our own analysis of Romney’s plan found that people who make over $1 million would get an average tax break of $400,000 if Romney didn’t bother to reduce or eliminate any of the tax loopholes enjoyed by the rich. On the other hand, we found that even if he took away all of the loopholes enjoyed by the rich, the people making over $1 million would still get an average break of $250,000. Millionaires would get huge breaks no matter what because the benefit of Romney’s rate reductions would outweigh all the tax loopholes they enjoy.
For middle- and lower-income families, the loss of these tax loopholes or tax expenditures could exceed the gains from Romney’s promised rate reductions, and this would have to be the case if Romney is to offset the costs of his tax breaks as he promises. Otherwise, the spending cuts or deficit-explosion described by Clinton would occur.
An analysis from the Tax Policy Center, which provided the figures quoted by Clinton, came to the same sort of conclusion.
OK, we know, we know, you don’t normally expect to hear anything enlightening about tax policy from a celebrity best known for her role on Desperate Housewives. But Longoria did articulate a point that hasn’t always been made clearly.
Mitt Romney would raise taxes on middle-class families to cut his own and mine. And that’s not who we are as a nation, and let me tell you why. Because the Eva Longoria who worked at Wendy’s flipping burgers, she needed a tax break. But the Eva Longoria who works on movie sets does not.
That sums up the idea behind progressive taxes. Tax breaks like the Earned Income Tax Credit (and to an extent, the Making Work Pay Credit that was in effect for a couple years) are the types of tax cuts that help people who needed it — people struggling to get by on low-wage work. Sadly most of the tax breaks enacted in recent years are the other type, the tax cuts that go to people like Eva Longoria today.
This is reminiscent of the conversation in 2008 between candidate Obama and Joe Wurzelbacher, aka “Joe the Plumber.” Joe said it was wrong to end the Bush tax cuts for high-income people because he hoped to be one of those people one day. Obama replied that Joe needs a tax cut now, while he’s working to get his business off the ground, and not after he’s making over $250,000 a year.