Will Romney Have to Raise Middle Class Taxes?

One of President Obama’s continuous campaign attack lines is the claim that Mitt Romney has, in Obama’s words:

…a plan to give trillions in new tax cuts to corporations and the wealthy, a plan that could cost the typical middle class family $2,000 a year.

In his convention speech former President Bill Clinton said Romney will…

…have to eliminate so many deductions like the ones for home mortgages and charitable giving that middle class families will see their tax bill go up $2,000 year

The President has bellowed this charge at campaign rallies for weeks, a double-whammy attack.  Not only will the hated “wealthy” pay less you working stiffs will have to pay more!  Outrageous!

However, the attack contradicts reality.  On Mitt Romney’s web site is an outline of a tax plan that starts with a 20% reduction to each of the existing tax bracket rates.  Everyone would see a rate reduction, not just the highest income tax payers.

So where does the Obama campaign’s allegation come from?   The  campaign cites a “report” by the Left leaning Tax Policy Center (TPC).  The proposal on Romney’s web site lacks detail so TPC invented some details. 

The report’s authors inadvertently reveal their real agenda in the following excerpt from the beginning the report by setting forth the conclusion they sought to verify when they began their research:

Any revenue-neutral individual income tax change that incorporates the features Governor Romney has proposed would provide large tax cuts to high-income households, and increase the tax burdens on middle- and/or lower-income taxpayers.

How can the tax burden on middle to low income tax payers increase if their tax bracket rates go down?  The TPC report projects and estimates tax revenue losses in the distant future based on assumptions that are manipulated by computer models to reach the desired conclusion.  Then, the TPC report adds the final assumption – speculation actually – that Romney, being a rich guy who only cares about other rich guys, will make up the revenue losses by eliminating deductions, which would result in a tax hike on the middle class.

The TPC folks didn’t review history to learn what happened after previous rounds of tax rate reductions.  If they had, they would have reached a different conclusion.  So, as a public service Liberty Works will do it for them.  We’ll begin with the most recent round of tax bracket rate cuts, 2003.

There are several historical examples income tax revenue to the government increasing after tax rate reductions.  As the above chart shows, Income tax revenue grew substantially after the 2003 tax cuts, falling only when the economy as a whole was decimated by the financial crisis of 2008 which dramatically reduced taxable salaries, profits and investment income.  But since 2010 revenue has grown substantially without any changes to the Bush tax rates.  In 2013 Revenue will most likely break a new record.

In fact, substantial increases in tax revenue have followed every previous round of tax cuts.  The next chart shows the effects of the Reagan tax cuts in the 1980s.

 The last chart tracks tax revenue after the Kennedy tax cuts of the 1960s. 

The Bottom Line

President Obama and the progressives never seem to acknowledge historical reality.  Before each of the last three rounds of tax cuts politicians, the Congressional Budget Office and various think tanks like TPC all predicted that disastrous revenue losses would result from tax rate reductions.  In each case they were wrong. 

After each round of tax cuts revenue went up, not down, because when tax rates are lower entrepreneurs and investors engage in more business activity, generating more taxable profits and hiring more people who earn taxable income. 

It may be a politically effective tactic to scare voters with the prediction that Romney’s tax cuts will result in revenue shortages the middle class will have to make up.  But if the tax-and-spenders win the argument and Obama is reelected, the very middle class they claim to speak for will be the ones who suffer the effects of an anemic economy: continued high unemployment and resulting low wages.

 

 

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1 Comment so far

  1. Larry Walker Jr on September 2nd, 2012

    TPC and the others conveniently gloss over the point that people who aren’t working and aren’t paying any income taxes, may actually have to pay something once they become productive members of society. They act as though it’s better for someone to sit at home on the government dole, or to stay with a low wage job for the rest of their lives, than to actually have a chance to earn enough to increase their tax burden. Yes TPC, when you earn more income (or any at all) your tax burden will probably increase, that’s the whole point.