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Wednesday, February 22, 2012

Romney Tax Plan Blows Hole in Budget, Remains Short on Specifics

Mitt Romney unveiled his tax plan today, but it revealed few surprises except for surprisingly few specifics. Via Chris Hayes (@chrislhayes), conservative economist Josh Barro estimates that the Romney plan consists of $5 trillion in tax cuts over 10 years, divided as follows:

$1 trillion from cutting the corporate income tax
$3 trillion from cutting all personal income tax rates by 20% (not 20 percentage points, by the way)
$1 trillion from miscellaneous tax cuts like abolishing the alternative minimum tax (AMT)

According to the Romney plan, the corporate income tax rate would fall from 35% to 25% and the U.S. would stop taxing countries on their foreign profits. Contrary to Romney's claim, making foreign profits tax-free would not encourage their investment in the U.S., but would instead give companies an incentive to make more of their profits appear to be foreign by creative use of transfer pricing to make profits show up in tax havens instead of the U.S. Under the Romney plan, companies would then be free to bring that money back to the U.S. without facing any tax, anywhere in the world.

Among the other non-surprises in the plan, Romney would not increase the 15% tax rate on his own main source of income, capital gains. He would repeal the Affordable Care Act, even though his version of it in Massachusetts gave the state the highest level of insurance coverage in the country at 95%. He would raise the eligibility age for Social Security and end Medicare as we know it a la the Ryan Plan, two staples of conservative talking points that would negatively affect the middle class.

As Barro points out, Romney has said before that he will increase American military spending (already tops in the world by far). This makes it even more difficult for him to offset the $5 billion in tax cuts without huge cuts to programs that the middle class depends on. Thus, I think the inescapable conclusion is that of Benjy Sarlin: "Romney's Tax Plan Still a Boon to the Rich, Despite 1% Talk."


  1. One point: it's a bit deceptive to say that we have the highest military spending, which is only true in absolute terms. Normally, these things are compared on a per-GDP basis, in which case a few nations, mostly in the Middle East, do surpass us. Israel is the only OECD nation that spends a higher fraction of GDP on defense than the US.

    Among the 34 OECD nations, we have the third lowest overall taxes, the ninth lowest overall government spending, and the fifth lowest non-defense spending. It's pretty obvious that we have a taxing problem, not a spending problem outside the bloated military.

    1. Of course it is true that a few countries spend more than the U.S. on GDP basis (nine, according to the SIPRI database duplicated at Wikipedia:, but my point wasn't really comparative. It was just that the U.S. spends a ton on the military, and Romney proposes to increase that even further, even as he cuts taxes. Otherwise, it does not appear that we differ much on substantive issues.