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Romney’s Tax Cuts May Be a Hard Sell With Voters

In U.S. national politics, Republicans flourish when the focus is on tax cuts; they suffer when Medicare is the focus. It looks like it’ll be different this year.

Mitt Romney has proposed huge tax cuts that principally benefit the wealthy, while refusing to say how he’d pay for them by closing unspecified loopholes. This lacks credibility and may become one of the rare tax-cut promises that is a political loser.

On Medicare, Romney and his running mate, Representative Paul Ryan, have put forth a plan that ultimately would turn the federal health-insurance program for the elderly into a premium support, or voucher, program. Democrats are winning on the issue in Florida and elsewhere.

There are two reasons this is no longer the third rail for Republicans. One, a counterattack charging, speciously, that President Barack Obama’s health-care measure cuts benefits for Medicare recipients. The other is a general recognition that changes need to be made in the program and whatever the problems with the Romney-Ryan proposals, the president has ducked the issue.

Capital Gains

On taxes, it’s Romney who’s ducking. He has proposed a tax cut of more than $4 trillion over 10 years, an across-the-board 20 percent reduction in individual income-tax rates, the elimination of the estate tax, the alternative minimum tax and taxes on capital gains, dividends and interest for those earning less than $200,000. The corporate rate tax rate would come down to 25 percent from 35 percent.

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He insists this can be achieved without raising revenue, by limiting tax preferences. He refuses to specify any. The candidate cites Republican experts such as the Princeton University economist Harvey Rosen. However, Rosen says this is feasible if Romney eliminates the popular tax deductions for items such as home mortgages and charitable contributions for those making more than $100,000 a year.

That’s a nonstarter for many Republicans, even with the trade-off of lower rates.

Thus, most tax experts say the Romney plan is a mirage.

“You can’t get enough base-broadening to finance his rate reductions,” says Michael Graetz, a Columbia Law School professor who was a top tax official in President George H.W. Bush’s Treasury Department. “Romney says what he will do on tax cuts but he’s not prepared to say what he would do on the hard stuff.”

Moreover, Graetz asks, “Do we believe that Mitt Romney will make tithes to the Mormon Church and other charitable outfits non-deductible?” In the two years of tax returns Romney has released, he made $42.6 million and gave $7 million to charity, mostly to his Mormon Church.

Promises for a revenue-neutral plan in which the middle class and small businesses get a net tax cut suggest higher overall taxes for either the poor or the rich. The Romney campaign refuses to comment.

Romney’s tax problem is further compounded when he insists his plan wouldn’t change the progressivity of the tax code. He cites Ronald Reagan’s 1986 tax-reform bill and the recommendations of the 2010 Bowles-Simpson deficit-reduction panel as models for cutting tax rates and broadening the base in a non-regressive manner.

What Romney doesn’t say is how this was achieved. Capital- gains taxes were increased and treated as ordinary income in both the 1986 Tax Reform Act and the Bowles-Simpson plan. Romney has ruled out any increase of those levies.

Wealthy Benefit

Many of Romney’s proposed tax cuts benefit the wealthy, and tax experts say it would be exceedingly difficult to retain the current progressivity if higher capital-gains rates are taken off the table.

Moreover, Reagan financed the lower individual rates with sizeable increases in corporate taxes, such as the elimination of the investment tax credit. Romney wants to cut, not increase, corporate taxes.

Reagan and George W. Bush gained the upper hand in the tax debate with promises of big cuts. Neither talked about any offsetting revenue increases.

A simple look at the budget deficit explains why the situation was different then. In 1980, the federal deficit was $60 billion; the public was frustrated about stagflation, a stagnant economy with soaring prices.

Twelve years ago, the second President Bush promised a tax cut because his predecessor, President Bill Clinton, left him a $240 billion budget surplus.

The deficit is projected to reach $1.3 trillion this year, and this is a centerpiece of the Romney-Ryan attack on Obama’s economic performance.

Research by Democrats shows that undecided or persuadable voters -- disproportionately white, younger and not college- educated -- are turned off by what they see as the unfairness of the Romney tax plan. A current Obama ad charges the Republican would increase taxes on the middle class by $2,000 to pay for a tax cut for millionaires. While this is conjecture, the Romney camp has no specifics to refute it.

Democrats are plotting ways to accentuate the lack of transparency in Romney’s plan. One notion is to tie it to his refusal to release more than a few years of his own tax returns with the charge: He won’t tell you what he did pay or what you’re going to pay.

(Albert R. Hunt is Washington editor at Bloomberg News. The opinions expressed are his own.)

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To contact the writer of this column: Albert Hunt in Washington at ahunt1@bloomberg.net

To contact the editor responsible for this column: Max Berley at mberley@bloomberg.net.

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