Two minutes isn’t a lot of time to talk about taxes. It’s even less time when you’re trying to get in zingers and tout your platform. That’s what makes debates both fun and frustrating.
During the Vice Presidential debate, VP hopeful Paul Ryan referred to his tax plan but didn’t offer any specifics. There was pressure to offer more about the plan than he did on Fox News when he refused to talk numbers, saying, “it would take me too long to go through all the math.”
But numbers are important. And math is important. In fact, far from rhetoric, budgets and tax are all about numbers. And some basic understanding of tax plans is important to voters. So here’s a quick primer:
Under the Romney/Ryan plan, the 2001 and 2003 tax cuts (the ones that I’ve promised to stop calling the Bush tax cuts) would be permanently extended for all taxpayers. That would include the 3.8% Medicare tax on investment income of high-income taxpayers scheduled to take effect in 2013.
In contrast, the tax provisions that were effective under the Obama stimulus plan would be allowed to expire. Those include, for example, expansions of existing credits such as the child tax credit, the earned income tax credit (EITC), and the American Opportunity Credit (the souped-up version of the Hope Credit).
What would be eliminated? The alternative minimum tax (AMT) and any taxes under the Affordable Care Act (the new health care act); the latter makes sense because Romney has promised to repeal the health care act. Also scheduled to be cut are taxes on long-term capital gains, dividends, and interest income for married couples filing jointly with income under $200,000 ($100,000 for those filing as single).
Romney has also suggested that he might cap itemized deductions at $17,000 for those taxpayers who file a Schedule A (only about 1/3 of taxpayers do). Ryan kind of skimmed over this during the debate – tossing it out as a sound bite – for a very good reason: it will never happen. Ryan’s in Congress, he knows. Lobbyists jealously guard those Schedule A deductions: between charitable organizations and real estate special interest groups, there’s no wiggle room. And this isn’t a new idea. Obama suggested limiting deductions in 2009 and Sen. Pat Toomey (R-PA) suggested the same thing in 2011 – the result was the same for both (nothing). While I think that the idea makes sense on a fiscal level, I don’t expect it to pass. Or even get talked about much beyond the election, which might explain why Ryan didn’t make it a focal point of the debate.
Under the Romney/Ryan plan, tax rates would become flatter: rates would be compressed. The result would be a bottom tax rate of 8% and a top tax rate of 28%.
Those across the board tax cuts would, of course, lower tax bills for almost everyone. Statistically, most taxpayers (about 3/4 of those currently paying taxes) would have a lower tax bill under the Romney/Ryan plan. Only about 10% of taxpayers would see their tax bills increase under the plan (those affected are probably at the lower end of the spectrum due to disappearing tax credits). This has become a point of interest for many since Romney said during the first presidential debate, “I will not reduce the taxes paid by high-income taxpayers.”
Overall, analysts seem to figure that the plan would result in about $500 billion less tax revenue out of pocket (over ten years, that works out to the $5 trillion cut that Obama threw out during the debate). Reduced taxes sound great except for the elephants in the room: spending and the deficit. While Romney promises to cut wasteful spending, he also intends to increase other kinds of spending, like defense. It’s not clear from Romney’s plan how he plans to simultaneously make up the difference between lower revenues and the gaping hole that is the deficit. We can’t just keep raising the debt ceiling and calling it a day.
So back to Ryan. Before the debate, I said that I thought Ryan had a better grip – whether you agree with his policies or not – on the economy than any of the four candidates. He drafted the GOP economic plan. He’s the chair of the powerful House Budget Committee. He’s a numbers/money guy. So why didn’t he sound better during the debates? Why not hammer home the economic policies that he had so confidently presented in years past – even in the face of opposition from his own party (like Gingrich)? Here’s what I think: it’s Romney’s fault. Romney changed the plan. And Ryan couldn’t spin that positively.
I think changing your mind in the face of new facts and new information is a good thing. This economy is nothing if not a roller coaster ride (The market’s up! The market’s down! Unemployment is up! Unemployment is down!). And making an adjustment to accommodate that is smart. Reagan did it successfully during his administration when his 1981 cuts weren’t working in a 1986 world. I expected the Romney/Ryan ticket to embrace the legacy of Reagan but I don’t think they’ve settled on how that’s going to work. I’m not sure why. The campaign feels divided. And that division was clear when Romney broke with the economic script during his debate, leaving Ryan in the lurch.
I think Ryan is an asset to the GOP ticket. He’s smart, he’s young and he is much more relatable than Romney. I think he needs to find his spot on the ticket, though. I know that Romney wants to be the money guy but his policies are rooted in the private sector and – even though that sounds like a good thing – isn’t how Washington works. Ryan has figured that out. He’s really the money guy.
In the weeks leading up to the election, it will be interesting to see where this interplay takes the ticket. The numbers need to add up, the math needs to work and the team cannot continue to be mum on the details. More important, Romney and Ryan need to be on the same page.
(I know what you’re wondering: where’s my take on Biden? One tax plan at a time, folks. Tune in tomorrow!)