Top 10 Reasons to Vote for Mitt Romney

1.             You crave the excitement of not knowing what your president will say or do next.

2.           Women can’t be trusted with their own bodies.

3.           It’s been nine years since we invaded a Middle Eastern country.

4.          Sunrise through smog is so beautiful.

5.           Rich people don’t have enough money.

6.          You’ve never experienced a Great Depression.

7.           You’d like to see steeplechase on the White House lawn.

8.           You want to protect mass murderers’ access to semi-automatic weapons.

9.          You want to see what the Supreme Court would do with a couple more Scalias on the bench.

10.      You’re afraid that if Mitt loses, Republicans will nominate someone even crazier in 2016.

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Public Service Message: Americans are Awesome

Kate Trono is cycling across country to raise money for the National Brain Tumor Society in her dad's memory

At a time when many of us are unhappy with many of the rest of us for supporting an evil socialist/selfish plutocrat (choose 1), I have a public service message: This country is full of great people.

I ran into one today while bicycling. I had stopped after a long climb to take a picture of one of my favorite vistas. Another bicyclist stopped, clearly winded from her climb up the other side of the hill. I was feeling quite superior until I noticed that she had four fully loaded packs on her bike. She told me that she’d ridden about 3,580 miles farther than I did to get to that point, having started her trip in San Francisco two months ago. Her bike and packs weighed 90 pounds. Mine totals about 25. She’s a strong woman.

More impressive is the cause that has propelled her all these miles through heat and rain and over mountains. Her dad and a close family friend were both victims of aggressive brain tumors that slowly disabled them and ultimately took their lives. Kate decided to turn her grief into something positive. Her long, hard bike ride is a fundraiser for the National Brain Tumor Society, which is funding research and awareness to try to find a cure for this terrible disease, and help patients, family, and friends cope with it in the meantime.

Meeting Kate also reminded me that Americans are among the most generous people in the world, at least when it comes to private philanthropy.  When my son Paul and I biked across country to raise money for Partners In Health, 300 people contributed an average of $360 (or 10 cents a mile) for a total of $108,000. My fundraiser achieved the kind of bipartisan support that is only a wistful memory in the corridors of power in Washington.  I learned that my friends were engaged in amazing philanthropic activities themselves. And they were so supportive. It made our cross-country bike ride a truly amazing experience.

At 25, Kate’s a lot younger than I was and has few friends able to pony up 10 cents a mile, which in her case would be about $400 since she’s taken a longer route.  But a self-supported ride across country is way harder than what Paul and I did (we went with a company that carried our clothing and provided on-road support). And she is a great person who you would like instantly. I did.

So why not take a break from the angst and rancor of the election season and help Kate honor her father’s memory by contributing to the National Brain Tumor Society.  You can find a link on Kate’s website (www.pedalingforacure.com).   And pass this on to your friends.

Imagine if something like this went viral.  Really.  It is why Al Gore invented the internet.

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PS, Yes, I did steal that line from Jon Stewart.

About Mitt Romney's $5 Trillion Tax Cut

Here’s Governor Romney at Wednesday night’s debate, responding to President Obama’s critique of his tax plan:

First of all, I don’t have a $5 trillion tax cut. I don’t have a tax cut of a scale that you’re talking about.

…

I’m not looking for a $5 trillion tax cut. What I’ve said is I won’t put in place a tax cut that adds to the deficit. That’s part one. So there’s no economist that can say Mitt Romney’s tax plan adds $5 trillion if I say I will not add to the deficit with my tax plan.

Okay.  Now we know that Gov. Romney’s tax plan does not call for a $5 trillion tax cut.  Which means that we now officially know nothing at all about Mitt Romney’s tax plan.

Previously, Governor Romney has said that his tax plan would cut all individual income tax rates by 20%, eliminate the AMT, eliminate the estate tax, and eliminate taxes on investment income for low- and middle-income taxpayers.  He would also extend all of the Bush-era tax cuts that are scheduled to expire at the end of 2012.

Those tax cuts would reduce federal revenues by $480 billion in 2015 over and above the cost of extending the Bush tax cuts.  Allow for some growth in income, and the total comes to over $5 trillion over ten years.

Gov. Romney also has a super-secret plan to close loopholes and deductions on high-income taxpayers to make up the lost revenue without raising taxes on low- and middle-income households.  Efforts by the Tax Policy Center to test whether such a plan might exist have been met with furious criticism from the Romney campaign and its allies,  Through several iterations, the critique has been: (1) that’s not our plan, and (2) we won’t tell you what the plan actually is.

On Tuesday, there was a hint of specificity.  Governor Romney floated a trial balloon:  he’d pay for his tax cuts by capping deductions at $17,000.  As Ipointed out yesterday, that plan probably doesn’t work either in the sense that it will either (a) add to the deficit, or (b) raise taxes on middle-income households, both of which the Romney camp has strenuously disavowed.  Of course, it’s hard to tell what that plan would or would not do because again there are no details.  I assume that if the TPC tried to analyze it, Romney would reply that (1) that’s not our plan, and (2) we won’t tell you what the plan actually is.

In fact, it’s pretty clear that even Gov. Romney doesn’t know what this incarnation of his secret plan is.  Last night, he said:

And I’m going to work together with Congress to say, OK, what — what are the various ways we could bring down deductions, for instance? One way, for instance, would be to have a single number. Make up a number, $25,000, $50,000. Anybody can have deductions up to that amount. And then that number disappears for high-income people. That’s one way one could do it.

So the deduction threshold is not necessarily $17,000.  It is “make up a number.”  That’s helpful.

The bottom line is that we have no idea how Gov. Romney will make up the revenue lost due to the tax cuts he has specified in some detail.  Obviously, Gov. Romney doesn’t either.  The odd thing is that he seems to think that this is irrelevant.

It sounds like some sort of confidence game.

Romney to typical millionaire:  ”Hey there.  Have I got a deal for you!  How would you like to save a quarter million bucks in 2015?  Sounds good, doesn’t it?”

Millionaire:  ”Uh, sure.  What do I have to do to get the quarter million bucks?”

Romney:  ”Hey, don’t worry about that.  Those are just details.  Sign here.”

My guess is that the Romney behind Bain Capital would never have fallen for that scam.  Why does he think the voters should?

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More Than Half a Million Farmers Didn't Pay Income Tax in 2007

DES MOINES, IA - AUGUST 08: Republican presidential candidate Mitt Romney tours a corn field with Iowa Secretary of Agriculture Bill Northey (R) and farmer Lemar Koethe on August 8, 2012 in Des Moines, Iowa. (Image credit: Getty Images via @daylife)

I suspect that when Mitt Romney made his remark about the 47% of Americans who don’t pay income tax and won’t take personal responsibility, he was thinking about the mythical welfare queen staying at home collecting government benefits, although you’d think that a numbers guy would realize that slackers on the dole could only be a fraction of the giant swath of America that he’d dismissed.  As many  have pointed out, those who don’t pay income tax include most retirees who rely primarily on Social Security and a large group of working age people who pay significant Social Security and Medicare payroll taxes (as well as state and local taxes).

It also includes more than half a million farmers, who would seem to epitomize hard work and personal responsibility.  (Yes, farmers receive various subsidies, but those are concentrated on a handful of crops according to Brian Riedl of the Heritage Institution.  Two-thirds of agricultural output, including fruits, vegetables, livestock, and poultry “receive nearly nothing.”)

All told, based on data from 2007 income tax returns, 563,000 tax returns reporting farm income owed no income tax after credits.  That is 28% of such returns.  It is probably an underestimate because it excludes farmers whose incomes are so low that they don’t have to file a tax return.  (The 47% figure includes households who do not file tax returns.)

How do so many farmers avoid income tax?  In part, it is because farming qualifies for some special tax treatment.  The Joint Committee on Taxationlists seven agricultural tax expenditures, but they are comparatively small, totaling just $2.6 billion over five years.  Small businesses also qualify for various tax breaks, such as the ability to immediately deduct many equipment purchases.  (Larger enterprises must spread the deductions over several years.)  But my guess is that most of the farmers who escape income tax do it because they just don’t earn that much money.  Despite working really hard.

My guess is that Governor Romney is aware of this.  The picture above shows him talking to a farmer in Iowa and I assume that he has spoken with others.  I hope he will think about those farmers when he addresses the question of the 47% on Wednesday night.

The best response would be, “I’m sorry.  I was wrong.  I know that a lot of Americans are working really hard, doing the best for their families.  I don’t believe that the big problem in this country is that multi-millionaires like me are over-taxed and that hard-working middle-income families pay too little.  The big problem is that the benefits of hard work have been increasingly concentrated at the top while earnings of lower- and middle-income workers have been stagnant for decades.  I hope that my policies would help rectify that gross inequity, but until they do, I certainly don’t plan to add to the challenges facing the 47% by raising their taxes.”

That would be a flip-flop I could believe in.

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PS, My friend Lauren pointed out that the farmer in the picture is probably a millionaire.  Yeah, probably.  Mitt really does need to get out of the bubble.

Thank you, Mitt Romney, for making us care about capital gains taxes

Back in 1999, I produced a chart showing the relationship between capital gains tax rates and economic growth in my book, The Labyrinth of Capital Gains Tax Policy: A Guide for the Perplexed (p. 81). Some economists had made miraculous claims for the effects of lower tax rates on the economy, which I argued should be apparent in time series data.  The correlation between the two time series was basically zero.  I've updated this chart periodically (for example, here), but it never got much attention until I included it in my congressional testimony last week.  In the last two days, columnists at the Washington Post and New York Times have cited the chart and my testimony.

My wife, Missie, asked why there's been such a surge of interest.  I think it's Mitt Romney's 14 percent effective tax rate, which comes largely from the light taxation of capital gains and dividends.  So thanks, Mitt Romney, for getting Americans to care about the way we tax capital gains.

Here's the press coverage (aka shameless self-promotion):

Ruth Marcus, “Romney’s tax plan,by the numbers” (Washington Post, 9/26)

Leonard Burman of Syracuse University’s Maxwell School looked at capital-gains rates over six decades and found no correlation with economic growth. Look at his graph and you’ll see: The two lines — capital-gains rates and growth — bear no relation to each other.

Burman tried adjusting for time lags, of up to five years, and looking at moving averages of tax rates and growth. Still no correlation. “There is no apparent relationship,” Burman told the Senate Finance Committee last week. “Cutting capital gains taxes will not turbocharge the economy, and raising them would not usher in a depression.”

Joe Nocera, “Romney and theForbes 400” (New York Times, 9/25)

In 2009, according to recent Congressional testimony by Leonard E. Burman, a professor at Syracuse University, the 400 highest-income taxpayers reaped an astounding 16 percent of all capital gains.

…

In the printed copy of his Congressional testimony, Burman has a chart that plots the ups and downs of the economy since the 1950s with changes in the capital gains rate. There is no correlation between the two. The idea that a lower capital gains rate spurs economic growth is one of the enduring myths of conservative thought.

Ezra Klein, “The case for raising capital gains tax rates” (Washington Post (Wonkblog), 9/25)

Tax expert Len Burman has graphed capital gains rates and economic growth and found no relationship at all.  Burman says he also “tried lags up to five years and using moving averages, but there is never a larger or statistically significant relationship.” 

What he is sure of is that a very low capital gains rate incentivizes very complex tax avoidance. “Since ordinary income is taxed at rates up to 35 percent while long-term capital gains are taxed at a maximum rate of 15 percent, there is a 20 percent reward for every dollar that can be transformed from high-tax compensation, say, to low tax capital gains.”

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Mitt Romney's Self-Imposed Buffett (Lite) Rule and Other Observations

Governor Romney’s release of his final 2011 tax return and an affidavit from his accountant that he’d really paid tax in prior years provoked a feeding frenzy from the press and the blogosphere, despite the fact that there was almost no news.  His final return was not much different from the unfiled version posted earlier, except for this:

The Romneys voluntarily limited their deduction of charitable contributions to conform to the Governor’s statement in August, based upon the January estimate of income, that he paid at least 13% in income taxes in each of the last 10 years.  (Source:  FAQ on MittRomney.Com)

I find that part interesting.  Gov. Romney voluntarily imposed a kind of Buffett Rule on himself.  Recall that the Buffett Rule, as stated by President Obama, was the principle that millionaires should not pay lower tax rates than their secretaries.  This was codified in the Senate as a minimum effective tax rate of 30%.

Gov. Romney has apparently decided that the minimum tax should be 13%, so I guess both parties have agreed on the principle and are bickering about the rate.  (Or, perhaps, Gov. Romney misheard “thirty” as “thirteen.” Romney’sphysician’s letter, also released yesterday, makes no mention of hearing loss, although the doctor does seem confident that Gov. Romney will be the “next president of the United States.”)

Josh Barro has pointed out that the Governor can file an amended return to claim the unused charitable deductions, so he views the voluntary tax reduction as a kind of campaign donation–and one that will be paid back if the candidate loses and people lose interest in his tax returns and campaign promises.

Jacob Weisberg at Slate argued that Romney’s Buffett-Lite Rule violates another campaign promise:

“I don’t pay more than are legally due and frankly if I had paid more than are legally due I don’t think I’d be qualified to become president. I’d think people would want me to follow the law and pay only what the tax code requires.”  [emphasis added]

So, earlier in the week, the candidate writes off half of voters and a big chunk of his base.  Yesterday, he did something that he had earlier said would disqualify him for the presidency.  Do you think that, perhaps subconsciously, the Governor is deliberately trying to undermine his candidacy?  (The physician’s letter also did not comment on Romney’s mental health.)

But, if I may digress into substance for a moment, there is one point that I think most reporters have missed about Mitt Romney’s tax returns:  he pays much, much less than a 15% rate on his capital gains.   Most observers have noted that the 13 or 14% rate that the Governor pays reflects the fact that most of his income comes in the form of capital gains and dividends, both of which are taxed at a maximum rate of 15%.

However, Romney was able to avoid capital gains tax entirely on nearly $1 million of assets simply by donating them to charity.  He reported $920,573 of noncash donations to his foundation, all of which were shares of appreciated stock.  If the Romneys had sold the shares, they would have had to pay tax on any accumulated capital gain. By donating the shares directly to charity, they saved potentially tens of thousands of dollars (depending on how much the assets had appreciated in value).  And they got the charitable deduction on top of that.

An even bigger capital gains loophole is what columnist Michael Kinsley has called the “Angel of Death loophole.”  If you hold onto appreciated assets until you die, the capital gains are never taxed.  Your heirs get to pretend that they bought the asset on the day you died.  Heirs will avoid $44 billion in tax through the Angel of Death loophole in FY 2013 according to Congress’s Joint Committee on Taxation.  Presumably, the Romneys are planning to take advantage of it too.

All of these techniques are perfectly legal.  And they are one reason why wealthy taxpayers can pay much lower effective tax rates on their capital gains than the advertised rates.  And the very light taxation of capital gains is more than an issue of equity.  It surely results in much economically unproductive tax sheltering activity.

I discussed the economic issues surrounding the taxation of capital gains at ajoint hearing of the House Ways and Means and Senate Finance Committeeson Thursday.  A video link is on C-Span.

Once again, I’m grateful to Gov. Romney for creating a teachable moment on an important subject.

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In Mitt's World, My Limo Driver Is Not Trying Hard Enough

I’m on my way to the University of Michigan to participate in a forum on the presidential candidates’ tax plans.  I’m thinking about Mitt Romney’s statement that the 47 percent of Americans who do not pay income tax are lazy and dependent (and beyond the reach of his campaign).  One thought is that if Mitt is really the numbers guy that Bain legend makes him out to be and he really believes that the bottom 47 percent is lost, then he should give up now, since lots people in the top 53 percent are going to vote for Obama.  (Look at the polls.)  Or maybe he is counting on voter suppression to nullify the 47 percent’s votes.

Mitt and I disagree about whether seniors and low-income working families should pay more tax.  (I previously posted a pointed critique of Rick Perry’s assertion of dismay at the 46 percent—the correct statistic—who don’t pay income tax here.)

But what’s really galling is the implication that lower-income Americans just aren’t trying very hard.  Yes, theoretically, tax breaks can enable people to slack off, but Americans work really hard—even in difficult, poorly paying jobs.  My limo driver, Jeff, works 7 days a week to try to make ends meet.  My dad drove a taxi 6 days a week, 11 hours a day, before the advent of refundable tax credits and barely scraped by.  I’m certain that the existence of earned income tax credits would not have lessened his effort, although they would have reduced my family’s financial insecurity drastically.

Mitt, talk to the people tending one of your gardens or polishing the silver in one of your houses.  The work is hard—really much less rewarding than being a master of the universe (you) or a college professor (me), even before accounting for the discrepancy in pay.  I wouldn’t take my dad’s job even if offered 10 times my current salary.  I did it for a summer during college.  It was exhausting and often demeaning.  In my current job, I get treated with respect.  Even the occasional limo ride.

Jeff, my driver, used to work in a factory earning much more money, but was injured on the job, which is why he’s now driving back and forth to the airport seven days a week.  That’s terrible luck—something with which the governor has little experience, but a common feature among those in that 46 percent.  I’m glad a safety net exists to keep Jeff’s bad luck from jettisoning him from the middle class?

Yes, it would be wonderful if working hard were sufficient to guarantee a comfortable middle class existence, but it’s not.  Tens of millions work really hard and some of them benefit from tax breaks intended to reward work.  That’s a good thing.

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(This rant is from Tuesday, but I've been running around all week so am only just now posting it here. Sorry for the delay.)