Mitt Romney’s plan to fix the economy includes a few key revisions to our tax code.Namely:
- Keep today’s current low income tax rates
- Keep today’s current low capital gains and dividend tax rates
- Cut the corporate tax rate from 35% to 25%
Now, no one likes paying taxes, and Mitt Romney’s plan will almost certainly leave you paying lower taxes than you would be paying under President Obama.
So, if your primary concern is paying lower taxes, your choice is clear: Vote for Mr. Romney.
But it’s important to note that Mitt Romney’s plan will be vastly more helpful to the richest 1% of Americans and the rest of America’s “ownership” class than it will be to average Americans. It also won’t help fix the economy.
Well, for starters, the current tax rates on the country’s highest earners are already very low relative to most of the last century. Second, the country’s richest people–like Mitt Romney himself–make a huge amount of their earnings from capital gains and dividend taxes, which are at record lows.
(As has been widely discussed, Mitt Romney paid a 14% tax rate on the $22 million he made in 2010. His tax policy would ensure that he keeps paying that rate.)
So, Mitt Romney’s proposal for personal taxes will help the country’s highest earners much more than other taxpayers.
And since the problem with the economy is not that the richest Americans don’t have enough money–they do–but instead that the vast American middle class, which contributes most of the spending in the economy, is broke and deeply indebted, putting even more money in the hands of the richest Americans won’t help the economy. It will just put more money in the hands of the richest Americans.
What is less obvious is that Romney’s big proposed tax cut–chopping the corporate tax rate from 35% to 25%–will also be a boon to the richest Americans, because they’re the ones that own most of the country’s corporations.
And this tax cut also won’t help the economy–because, again, the problem with the economy is not that corporations can’t afford to hire people and make investments. Corporations can afford this. Today’s corporate profit margins are the highest in history, and corporations already have so much cash that they don’t know what to do with it.
Again, the problem in the economy is that the corporations’ end customers–the hundreds of millions of people in America’s middle class–are broke. So there’s no reason for corporations to hire anyone else or make additional investments–because American consumers can’t afford to buy more products even if the corporations make them.
Moreover, far from American corporations paying usurious taxes relative to the rest of the world, our companies actually pay relatively low tax rates–because most companies take full advantage of dozens of corporate tax loopholes.
So, although Romney pitches his corporate tax cut as a way to “make America more competitive,” it will really just make certain Americans–and certain foreigners, those who own American corporations–richer, by inflating the value of the corporations. And it won’t help the economy. In fact, by increasing wealth inequality in the country, it may well hurt it.
The centrepiece of Romney's tax plan is a proposed corporate tax cut. Here's Romney shows that US corporate taxes are higher than corporate taxes in the rest of the developed world. This, he argues, makes US corporations less competitive.
But the truth, not surprisingly, is that US corporations don't pay anywhere near as much tax as the statutory 35% rate suggests. In fact, thanks to the amazing number of loopholes, the ACTUAL corporate tax rate is now below 20%. That's below the OECD average.
Romney's argument is that, if we stop making corporations pay so much in taxes, they'll start investing more and hiring more people. This seems very unlikely. Why? Because corporations already have plenty of money. After-tax profit margins are the highest in history.
Nor are corporations investing aggressively. Private non-residential investment is very low as a per cent of GDP.
THE BOTTOM LINE: The problem is not that corporations don't have enough cash or pay taxes that are higher than the rest of the world. Corporations have oceans of cash, and they pay lower taxes than the rest of the world. So giving corporations an additional tax cut isn't likely do more than make corporations (and their shareholders) even richer.
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