Voodoo Economics Today

The Tax Policy Center has reviewed the tax plans proposed by Mitt Romney, Newt Gingrich, and Rick Perry. All three would drastically reduce taxes on corporations and wealthy taxpayers. Romney would take things a step further by actually raising taxes on the poor, while Gingrich and Perry might raise taxes on the poor.

Romney would eliminate the taxes on capital gains and dividends for couples earning under $200k, while Gingrich and Perry would eliminate them for everybody. All three candidates would eliminate the estate tax and drastically reduce the corporate tax rate. All three would also eliminate the 0.9% tax introduced with the 2010 health care legislation, which only affects individuals earning over $200k and couples earning over $250k.

But enough about capital gains and dividends — how do these plans affect poor people? Romney has said that although he would extend the Bush tax cuts — the ones that mostly help rich people — he would allow the more recent tax cuts and credits to expire. The expiration list includes a tax credit for education, the expanded child tax credit, and the expanded earned income tax credit. Gingrich and Perry haven’t really specified how they would handle expiring tax cuts. Depending on what assumptions you make, each candidate’s plan might raise taxes on poor people (see examples for Romney, Gingrich, and Perry, and note the “percent change in after-tax income”). No matter what assumptions you make, all three plans are fantastic for rich people and corporations.

All three plans would drastically increase the deficit. The cost of the tax cuts would be somewhere between $180 billion and $1.28 trillion, depending on which plan you look at and what assumptions you make. NPR cited the lowest of these numbers, then reported that “Romney’s campaign disputes the estimate, saying tax cuts in the plan would help improve the economy, leading to more revenue.”

Ah yes, cutting taxes leads to more revenue. That’s what Reagan said, and it’s what George H. W. Bush called “voodoo economics.” We’ve already tried it for thirty years, and all we’ve succeeded in doing is destroying the economy.

In the 1950s, the top tax rate was over 90%. In the ’70s, it was 70%. Was the economy better in the ’70s as a result? I don’t think so. Under Reagan, the top tax rate went down to 28%, and it’s now 35%. According to Reagonomic theory, the economy should be much better now than it was in the ’50s. Rick Perry would like to have a flat tax at 20%, and Gingrich would like 15%. For corporations, the current tax rate is 35%, but Romney would like to reduce it to 25%, Perry to 20%, and Gingrich to 12.5%.

Supposedly, Republicans hate deficit spending, even though they created the current deficit. They love to complain about the 2009 stimulus package and its one-time cost of $787 billion. The tax cuts that the candidates are proposing would cost a similar amount every year. But instead of helping the economy and keeping teachers and construction workers employed, the tax cuts would simply be a gift to the wealthiest Americans. As Robert Reich pointed out eloquently in his book Aftershock, giving more money to rich people doesn’t help the economy — it just makes the economy more volatile.

When you vote, remember this: If your income is under $200k, these candidates’ plans would not help you. If your income is under $50k, the plans are likely to cost you money. And no matter what your income is, consider the effect on the economy when deficits rise and spending falls at the same time. Revenues are already unrealistically low; we can’t afford to slash them further. Cutting taxes on the rich while cutting benefits for the poor is exactly the opposite of what we need to do.

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