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.

Obama’s Energy Ideology Failure

T.Boone Pickens commented today that the US is the “only country in the world that doesn’t have an energy plan.”  In an article discussing natural gas prices, he spoke about his support for the bi-partisan NAT GAS act which is making it’s way through Congress and will probably be vetoed by Obama.  But it seems that criticizing Obama is not a popular move among people who have a lot to lose.  So Boone Pickens was slow though to criticize Obama, saying that gas prices were not Obama’s fault but were instead the fault of limited global supply.

That would be kinda like saying “The Jets bad year wasn’t Rex Ryan’s fault.  They just had bad coaching last year.”

Boone Pickens got another thing wrong.  The US does have an energy policy.  It is Obama’s energy policy which is designed to increase the price of gas until the pain causes entrepreneurs like George Kaiser of Solyndra to invent new forms of energy and consumers like you and me to buy them.  He enacted this policy again on Thursday when he lobbied Democrat Senators to ensure that they killed the Keystone Pipeline again.  Driving up gas prices until we all stop using gas and save the planet is a noble idea, as long as stopping the specter of Global Warming is such an honorable goal that we are willing to sacrifice the poor on its altar.

Consider this: I have an older car that gets about 28-30 mpg.  I have already inflated my tires and it didn’t seem to make gas prices go down.  Obama may have labeled oil the “Fuel of the past”, but if I put wind, solar, or algae in my gas tank, my car will not run.  So my choices are to pay $3.75 a gallon for gas ($3.25 in states that have access to Canadian sands oil, like Colorado), or buy a brand new electric car or hybrid.  A Chevy Volt costs about $31,000, and I’m pretty sure I don’t get a discount even though taxpayers own a sizable portion of GM thanks to Obama’s bailouts.  I would have to take out a loan.

I’m doing OK.  It’s a good year for tax accountants since the code just keeps getting more and more complex and the IRS keeps getting worse and worse when it comes to customer service.  I’m not rich by any means, but I could afford the payments on a Volt.  But what about the single mother who has to work just to put food on her family’s table?  What about someone for who one Chevy Volt represents a year’s wages?  Chances are there are lots of people out there who can’t afford $3.75 a gallon gas, but also can’t afford a $31,000 Chevy Volt and are not those “qualified buyers” they always talk about in the commercials.

Obama’s energy policy is: “Sucks to be you. Pray someone invents a cheap alternative that you can afford, and quick”

Here is the real kicker with Obama’s failed energy policy:  The people who are in a position to invent and bring to market an alternative to oil are not the same people who experience a motivating level of pain when gas gets up to $3.75 a gallon.  Obama’s strategy of hiking gas prices until it hurts so much that we invent an alternative will destroy the poor long before it ever affects someone who could actually accomplish that.  Why do you think his tax subsidized green energy companies keep going bankrupt.

Boone Pickens and other energy moguls are not going to invest in natural gas, wind, solar, ethanol and other forms of energy because they can’t afford to fill their tanks.  They are going to do it to make a profit.  This means they are going to do it when Americans can afford it and it makes sense as an alternative to oil.  They are going to do it when Americans can afford to buy Volts, solar panels, and cars that run on algae.  What Obama doesn’t seem to grasp is that the very thing that will put Americans in a position to buy green energy is economic growth that can’t happen when people can’t afford to drive to their jobs.

Obama calls “Drill Here, Drill Now” a bumper sticker slogan, not an energy policy.  It’s sad when a bumper sticker is smarter than the President of the United States.

 

RIP Cain’s 9-9-9 Plan

So much for simple.  After heavy criticism of his 9-9-9 plan, Herman Cain is retooling it to look a whole lot more like the current income tax code.  Cain plans on adding empowerment zones for poor neighborhoods, which is no surprise, but also adding tax brackets and exemptions.  Cain’s caving will not satisfy Republicans like Michele Bachmann who said everyone should pay taxes and then attacked Cain’s plan, or Democrats who have portrayed Cain as the devil for trying to come up with a fairer system.  What it does do is knock the legs out from under Cain’s campaign by removing the one base of support he could count on: the Fairtax, limited government crowd.

Another issue for Cain’s new progressive approach to his formerly flat 9-9-9 plan is that he proves himself wrong in his assertion that it would be a solid, unchangeable plan that future Presidents couldn’t tinker with.  One of the key elements to a flat tax is that it gets government out of the business of picking winners and losers, giving advantages to people in their districts, or buying votes through sin taxes and tax breaks for good behavior.  With Cain’s empowerment zone approach, there is a risk of taxes being a political selling point to the extent that they are now.

Rethinking Cain's effectiveness on flat and fair taxes

The complexity of empowerment zones, brackets and exemptions for good behavior will bog this system down in compliance issues.  The sales tax will basically replace the payroll tax on a business’s to do list, but with added complexities if that is possible.

Anyone with a “get rid of the IRS” bumper sticker may need to rethink Herman Cain.

Yes, he can?

In the volatility of the Republican 2012 primary, one thing is for sure.  Calling this race now would be like predicting the Superbowl in September.  How ’bout them Eagles.  Of course, I called the Eagles faltering before the season started.  I’m usually pretty good with my football picks.  So, allow me to apply some of that prophetic magic here.  FYI, this post is not for the faint of heart.  I’m just giving it to you straight.

Romney is all set as the Republican establishment candidate.  He has had that spot locked up really since before Mitch Daniels dropped out of the race.  Now the one stable thing in this race is that Romney will get the establishment vote.  He will also get a lot of mainstream Republican votes.  But he is going to run into a real issue, and that is with the anti-establishment movement within the Republican party.  All that is about to blow wide open this week as the NYT releases a story about opinions among establishment Republicans of the TEA party.  The GOP is about to have a civil war on its hands.  Whether they can recover by next November will be huge in determining whether or not Barack Obama is President in 2013.  Mitt Romney absolutely must nail down his conservative support and soon, or he will lose Iowa, South Carolina and Florida.

Cain's 999 plan could be his undoing

I like Herman Cain a lot.  I think he would make a great Vice President.  I think he would be a star on the campaign trail.  I think he would bring a lot of conservatives to the table and would bring the TEA party and anti-establishment wing to the table.  Here’s the problem: Herman Cain’s 9 9 9 plan sucks.  He would do better to drop that plan completely and advocate a Fairtax, which I also oppose for various reasons you can find here.  But even the Fairtax is better than 9 9 9.  Cain’s 9 9 9 plan has several Achilles’s heels hidden in its simplicity.  Perhaps the worst is the 9% flat tax on corporation’s gross profits minus purchases and dividends.  Unless Cain plans to include payroll with purchases, his 9% flat tax could turn into an effective 99% tax, or even higher, on low margin service industries with high labor costs.  But simplicity and feel good soundbites are what drives the Cain campaign.  Sometimes those soundbites are the common sense we are all thinking, but nobody who represents us is saying.  In those times, I love Herman Cain.  Other times it’s not much better than the soundbites written on a Wall Street mob sign.  Great for riling you up, until you stop and think about it.

Right now, we are watching the French Revolution in the TEA party and anti-establishment wing of the Republican party.  And who can blame them?  I should say, who can blame us.  Our party had the President who initially signed TARP.  Now, of course I don’t think Bush ever imagined TARP would be used to give the treasury secretary ultimate powers to steal companies from their bondholders, sell them overseas and give the proceeds to unions.  But he should have.  Conservative Constitutionalists are praying, quite literally, that we don’t get fooled again.  The result has been the rise and fall of Michele Bachmann, Rick Perry, and now Herman Cain.  Each time, the anti-establishment establishment is looking for that perfect, conservative candidate that we can get behind and support.

Now, suddenly Newt Gingrich is inching back into the top three.  In fact, while Cain tops out the very volatile state of Florida, Gingrich has hit double digits.  As a matter of fact, Gingrich’s facebook page shows a photo of him on the Drudge Report with a story about how he is still in this.  And he definitely is.

The difference between Newt and the other candidates is that Newt’s laundry has been on the line for years now.  Everyone knows who Newt Gingrich is.  He isn’t going to come out with a plan that sinks his campaign a month from now.  No one is going to learn during a debate about him forcing 12 year old girls to get vaccines for sexually transmitted diseases.  Everyone knows how imperfect his past is.  That’s why he hasn’t been in this race up to now.  And that is why he will be very dangerous if Cain falls on 9 9 9.  Of course, I mean “dangerous” in the best way possible.  Newt versus Mitt with no specter of late arrivals and no more candidates left to shoot up to the top could solidify January’s primaries.

Newt can carry Iowa and South Carolina easily once the other social conservatives lose their votes to him.  Newt was the first in the debates to really highlight how Obama was preventing jobs from coming to South Carolina.  And Iowa will pick the social conservative every time.  In a Newt/Mitt race, it will all be about Florida.

Could the debate in Jacksonville, FL determine the next President of the United States?

On January 26th, Republicans will hold the last GOP debate that matters before the primary.  I know, there will be one in Tampa the night before the primary.  No one is going to change their mind because of the Tampa debate.  It will all come down to January 26th in Jacksonville, Florida.  Mitt Romney versus the TEA party favorite.  The last time the Superbowl was held here, the Patriots won.

Cain’s Gain?

Mike Huckabee made it official over the weekend. He is not running. Huckabee was one of those candidates who was able to corner a specific share of the GOP market and turn them into a cult following. As the 2008 primary dragged on and Huckabee appeared on shows like Saturday Night Live to joke about how his mathematical chance of winning required winning every remaining state, Huckabee continued to campaign and siphon votes away from Mitt Romney in crucial states.

Even coming into 2012, Huckabee has maintained a Ron Paul-like base of support who will chide media outlets for not casting him in a bright enough light or leaving him out of 2012 primary analysis. To be honest though, I wasn’t surprised when Huckabee said no this year. Any Republican candidate is going to have a huge uphill battle facing their own divided party, the media, and then the Obama political machine. Who can blame Huckabee for wanting to sit this one out and make money hand over fist at his TV show?

Can Herman Cain pick up Huckabee's votes?

So who will get those voters who faithfully showed up and voted Huckabee even after his chances of winning evaporated in 2008? Only one candidate sofar has come out firmly for the socially and fiscally conservative platform, including the Fairtax, that Huckabee represented: Herman Cain.

Cain stands to pick up many of your neighbors who have the anti-IRS Fairtax signs in their yard and on their bumper stickers. He also will pick up many of Huckabee’s fans who are also mainstream Conservative media fans. There is a great deal of overlap between Foxnews talk show fans and Conservative radio fans.

Huckabee and Cain share another large support base among TEA Party candidates. Many of these small government conservatives who supported Huckabee in 2008 will look to Cain in 2012 as the most Conservative candidate who is not as radical as Ron Paul on foreign policy.

Will this be what bumps Cain into the top tier? It certainly is an opportunity sitting on the table. If Cain can make the connections in voters’ minds, he stands to be the one to gain.

Airtime for the backups

Aside from Tim Pawlenty, going into last night’s debate I think most pundits considered these to be second tier candidates. After last night, I will admit that the perception that most of these candidates don’t have a viable shot probably hasn’t changed. However, there were clear winners and clear losers. Here is my take on the debate, which at times will be blunt and harshly honest:

Tim Pawlenty

Pawlenty demonstrated why he is a top tier candidate. He was professional, studied, and Presidential. He took clean shots at Obama and did not make missteps. However, his answer to Cap and Trade may come across to the base as a weak answer. Cap and Trade is already widely unpopular with the TEA party and conservative right. It is almost as unpopular as humbling yourself before the media and admitting a mistake. I think it was the best answer Pawlenty could give, but it highlighted that unfortunate decision to initially support Cap and Trade. Pawlenty’s other disadvantage coming into last night was that everyone expected a polished performance. He will be judged at a higher standard. I was pleased to see Pawlenty show some charisma and get the crowd motivated. However, when it came to charisma, Pawlenty was not the candidate who stole the show.

Herman Cain

Cain provided the night with a dose of Donald Trump charisma mixed with Sean Hannity conservatism. Cain was unequivocal and commanded the stage. He was a crowd pleaser who handled each question without a gaffe or misstep. I think Cain’s performance brought many conservatives to believe that he could be the conservative answer to the straightforward, no nonsense approach that Trump had become so popular for. My prediction is that we will begin to see Trump wane in popularity now that the birther issue has run its course and Cain stands to benefit. We will see if Cain can capitalize on his performance.

If Cain’s popularity does grow, he will need to find answers to a lot of questions on issues that have not seen the light of the mainstream media yet. For example, Cain defended his support of the Fairtax by mentioning the concept of a “prebate” paid to every family at the beginning of the month for essentials. But is Cain prepared to face scrutiny on the prebate idea? The IRS paid out billions in fraudulent stimulus checks as a one time deal. Kiplinger says that the IRS estimates that 25% of earned income credit payouts were incorrect and fraudulent. Can the government cut a check to every family in America at the beginning of every month without an Internal Revenue Service, individual tax returns, and massive fraud? Also, getting rid of the IRS sounds nice, but who is going to make sure businesses remit the fairtax and prebates are paid out without a revenue department in the government? Perhaps we will see in the course of this primary if Cain is running on answers or populism.

Rick Santorum

Santorum did a good job as a whole, and will appeal to the same conservatives that Bush appealed to. The question is if Santorum can position himself as more likely to win than Obama. Santorum’s message resonates with social conservatives, and he made it clear last night that his message hasn’t changed. Will conservatives vote for Santorum? While presenting himself as a solid candidate, he did not say anything last night that distinguished himself or rocketed him into the top tier. Santorum’s win for the night was the fact that he showed up, while Gingrich, Huckabee and others did not. But he is still overshadowed by other conservative heavyweights, including Gingrich, Bachmann, Huckabee, and now Cain.

Ron Paul

Paul hasn’t changed since 2008. While he says many things that make sense to conservative constitutionalists and libertarian Republicans, Paul still comes across as the enemy of all things Democrat and Republican. This is great for wooing independents and libertarians, but will not win Paul the Republican primary. For most of the night, I felt myself agreeing with and cheering Paul, but he will once again be the martyr of the protectionist, states rights conservatives. They understand what Paul is saying, they just can’t figure out why non-Paul Republicans don’t. Here’s a hint, Ron Paul still comes across as abrasive, obnoxious, and anti-Republican. This man could be President if he could figure out how to sell himself and explain why what he believes would actually work. I spent a good part of the evening asking myself why Republicans don’t support Ron Paul, but the answer is the same as last time he ran. He is an uncompromising and radical philosopher campaigning in a world of soundbites, and soundbites are not kind to Ron Paul.

Gary Johnson

Picture a more abrasive and whiny version of Ron Paul, but without the name recognition. With Ron Paul in the race, who needs Gary Johnson? He did not distinguish himself, except to come down on the traditionally liberal side of Iraq, Afghanistan (supported it before he was against it), and drugs. His “cost/benefit” approach to drug legalization portrayed a dollars above principles approach to policy. Whether his views on the cost benefit of the war on drugs are right or wrong, such a calloused approach to a moral question will not win him a conservative majority. Johnson only made matters worse by dismissing the conservative majority in the Republican party as unnecessary in the primary and guaranteed to be loyal in the general election. He should ask John McCain if Republicans need social conservatives to defeat Obama.

Johnson’s moment of charisma showed itself in the form of scolding the moderators for not asking him enough questions, a move that screams “I am unpolished, second tier, and everyone knows it but me”. He will find his frustrations at not being taken seriously will continue to grow, mainly because he is not a serious candidate.

Summary

After last night, I think Herman Cain moved up, Santorum, Paul and Pawlenty remained unchanged, and Johnson moved down. Gingrich was probably hurt the most by not showing up, Romney was hurt the least. Gingrich could have used the exposure and chance to showcase his debate skills. Romney sofar has seemed to transcend any primary activity in early polls as an assumed front runner by most whether he shows up or not. Mitch Daniels was probably the most unfairly represented absentee at the debate itself. In the end, the only lasting effects of this debate will be a bump for Herman Cain.

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