Why I Love Mitt Romney’s Tax Plan

Let me start by saying this: were I the supreme commander of the United States with absolute control, the Romney tax plan would not be the final product.  I have been and will always be a fan of a pure, simple flat tax where anyone can file with anyone else and the government cannot punish or reward you for how you choose to live your life.

Preface #2: I am a licensed tax professional with experience in preparing thousands of personal, corporate, state and some types of international tax returns, so I do have a little bit of street cred on this issue.

paul ryan

The Romney tax plan is something Paul Ryan can proudly run on

All that being said, I love Mitt Romney’s tax plan.  First, it is not wimpy.  It is not RINO, status quo policy.  The Romney tax plan will be easy to run against for someone like Obama, who is willfully choosing to run as dishonest a campaign as he possibly can.  It has necessary trade offs and it destroys the leverage of special interest groups.  It makes it so that billionaires can no longer zero out their tax returns.  It will be a small tax hike for people like Mitt Romney, who can sit back and collect carrying interest and dividends and live comfortably on that income.  It will be a tax break for the middle class.

The best thing about the Romney tax plan is that it ends the power of special interest groups that is built into the tax code.  Currently, people and corporations are punished and rewarded by the tax system for certain behaviors.  For example: if you go to school, you are rewarded.  If you rent your home, you are punished.  If you put all your money in interest-free muni bonds, you are rewarded.  If you sell your capital assets with less than a year holding period, you are punished.  While there is still uncertainty as to which credits, deductions and loopholes Romney would eliminate, the key is that he will be eliminating many and trading them for a 20% tax cut across the board.

That brings me to the second best thing about his plan: it means a simpler tax return.  Just when you thought it was impossible enough to do your own taxes, with Obama’s plan, now you will have to record your health insurance on your tax return, and if you make a certain amount you will have 3.8% in extra taxes on investment income and .9% extra on wages.  Have fun with those IRS schedules, and don’t screw it up or they’ll catch you two years from now plus interest and penalties.

The Romney plan will eliminate pages of schedules and forms from your tax return and trade them for a simple across the board rate reduction.

If Democrats knew enough about the tax code to understand what this plan does, they would support it too.  Instead of lobbing an extra 4.7% tax increase at taxpayers (including small business owners) who make $200,000, plus an additional 3-4.6% if Obama has his way with the Bush tax cuts, the Romney plan eliminates the tricks that the mega rich use to cut their tax rates below 15%.  It is a targeted change to the tax system, not a hatchet rate increase that harms employers.

If Romney is raising taxes on the super-rich who shelter their income, won’t that hurt growth?  No, and especially not compared to Obama’s plan.  Obama’s plan is to increase the dividend rate to the income tax rate.  That’s a tax hike of up to 19.6 percentage points.  Obama plans to hike capital gains taxes by 5 percentage points.  Romney would leave those taxes as is for the wealthy and eliminate them for people who make less than $200,000.  In other words, if you are middle class you will be able to invest money without paying 15% off the top to the government.  That will change the risk reward ratios for millions of middle class investors and shift capital ownership while encouraging saving among the middle class and not discouraging investment among the rich.

Then there are the tax cuts for businesses to make the US more competitive with other countries.  Also, by switching to a territorial tax system, Romney let’s multinational companies invest in American growth without being penalized and removes the incentive to keep investments off-shore.  This will allow companies to bring overseas profits back to the United States to build headquarters, offices, and manufacturing plants here instead of keeping it in other countries to avoid a US tax hit.  Then the income from this new American growth will contribute to American tax revenues going forward.  With the current system, we tax multinational companies if they want to invest dollars in the US, even if they have already paid foreign taxes on those dollars.

Romney will have some difficulty with certain groups.  For example, if he takes away the $250 deduction for teachers buying teaching supplies in exchange for a 20% tax cut, you can bet there will be ads run with poor children holding out their empty backpacks and a subtext about how they used to have school books but Romney took them away.  If Romney touches the mortgage interest deduction in exchange for a 20% tax break, you can bet the National Association of Realtors will be running ads with homeless people talking about how Romney took their opportunity at home ownership away.  Those special interest groups will hang on tough.  Democrat city mayors who would normally decry the rich for sheltering their income will suddenly discover that tax free interest on municipal bonds is the only thing keeping society from turning into some sort of post-apocalyptic jungle.  Never mind that middle class families will pay less in taxes under the Romney plan; threaten to take away their mortgage interest deduction and most do not know enough to be OK with that.

Then there is the valid argument that the rich already pay their fair share of taxes.  But the Romney tax plan doesn’t target the rich who invest their money in American businesses like Obama’s plan does; it targets the rich who get high life insurance payouts tax-free, who shelter their money in tax-free municipal bond interest, who invest in oil and gas wells to shelter income through high amortization expenses, and so on.  Won’t that hurt investment in oil and gas, you may ask?  Not with Romney as President instead of Obama, because he will open up the avenues for exploration to the point where major companies can hire and get involved.  Then average citizens like you and I will have more opportunity to invest in companies that buy and develop oil fields.  And on top of that, we won’t have to pay taxes on our dividends and capital gains from those investments.

I’ll be honest: I liked the Bush tax cuts, but I didn’t love them.  They made some things more complex and left much of the rest of it at the same complexity.  Meanwhile, they cut taxes across the board.  I applauded their passage and re-passage under Obama, but they didn’t fundamentally change our tax code from the garbled, complicated special interest buffet that it is right now.  I hated Herman Cain’s plan; it would have been a more complicated mess than what we have now, and would have been a huge tax hike on the poor and middle class.  I’ve written extensively about it here at Whitehouse12.com.

I love Mitt Romney’s tax plan, and I never imagined that I would.  Additionally, he hired the right guy, Paul Ryan, to explain it, because it will be much easier to distort his plan for political gain than to spell it out in a way that people can understand.  To be sure, it is an over-all tax cut.  There is no denying that.  However, if it inspires growth as it is designed to, the revenue increase will make up the difference and keep it revenue neutral as promised.  Even the Tax Policy Center, which originally claimed Romney would hike taxes on 95% of Americans, has come clean and admitted his plan is viable.

In my mind, no tax plan will be perfect until it is flat and cuts spending by at least $2 trillion.  But this is the next best thing.

No Silver Lining – Obamacare Taxes the Poor

We passed the bill, and even now we are still finding out what is in it.  When Nancy Pelosi said we had to pass the 2,700 page healthcare bill to find out what was in it, that’s because nobody really knew.  Turns out they missed something big.  If a state can’t pay the $2 billion to set up a state run health insurance exchange and passes on that portion of the law, the federal government cannot provide the poor in that state with health insurance tax credits.  In other words, if states spend their limited resources on teachers, roads, police, firemen, and libraries instead of building one of Obama’s bureaucratic insurance exchanges, the poor not only don’t get help buying health insurance, but then have to pay the penalty tax for not buying health insurance.

If $695 in penalty taxes is enough to bankrupt a homeless person, than you can count Obama’s claim that no one would ever face bankruptcy for medical reasons again as one more broken promise.

There is a provision for the federal government to set up a national exchange for states who don’t or can’t spend the money to build their own.  However, a simple mistake in the law, or possibly an intentional penalty, only allows for federal tax credits to individuals in states with state run exchanges.  Perhaps Obama thought that by the time the law was implemented states would be able to shell out an additional $2 billion to pay for it.

Personally, I support Governor Scott’s decision to use that $2 billion to keep Florida from having to lay off teachers in our already hurting school districts.

Add this unforced error to Obamacare and there are few silver linings left for most Americans. Families can keep their kids on their health insurance up to age 26, but in many cases these “kids” are either old enough to be out on their own or are still students and could actually get student health insurance plans for far cheaper than the cost of being added on to their parent’s plan.  At the same time, the cost of adding 25 year olds to family plans has helped raise rates for everyone.  There is the tax credit for small businesses, but a tax credit for businesses with 15 or fewer employees who make less than $50,000 but can still afford to provide health insurance and pay an accountant who knows how to figure the credit are few and far in between.

When the health insurance taxes are fully implemented and the price of health insurance shoots high enough, no one will get health insurance until they get sick.  In states that can’t afford exchanges, the poor won’t get insurance either.  The very problem Obamacare sought to fix, that of middle class and poor “free-loaders” who either can’t afford insurance or decide not to buy it, will be made infinitely worse by Obamacare.

One more thing to add to this mess is that many states can’t afford the Medicaid expansion either.  Liberals are scratching their heads trying to figure out why states would forgo more Medicaid money.  But it’s like this: picture if someone with a million dollars in debt invited you to have steak dinner with him at the most expensive restaurant in town.  The two stipulations are this, first you have to pay half, second you have to then do the same thing for every dinner for the rest of your life.  And if this man with a million dollars of debt can no longer afford his half, you’re stuck with it.  Would you accept the offer of “free” steak?  State’s can’t afford their half of the Medicaid expansion, and they certainly know Uncle Sam can’t afford his share either.

In the end, Obamacare is bad news for the majority of Americans.

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