Hartford Independent Examiner, July 22, 2012
An economist claims Romney's tax program aids
jobs overseas. Is that be right?
by Robert Kulak
...
President Obama, last week, said that an independent economist, [Kimberly
Clausing] evaluating Mitt Romney’s tax plan, showed that the plan would
create 800,000 jobs overseas.
..Romney... proposes to:
1. Cut the corporate rate
to 25 percent. The U.S.’s corporate tax rate is 35 percent and among the
highest in the industrial world.
2. Switch to a territorial tax system
for corporate taxes. In a territorial tax system, only income earned in a
particular country would be taxed by that country.
In producing her model, Clausing says that she used an
effective U.S. tax rate of 27.1 percent, almost 8 percent less than the
nominal rate. But Romney is proposing a corporate tax rate of 25 percent.
Shouldn’t she have used that as her starting point and an effective rate of
perhaps 17.1 percent?... And she seems to ignore the fact that a lower U.S.
tax rate would likely import some jobs.
... the President’s own National Commission on Fiscal
Responsibility and Reform (aka, the
Simpson-Bowles Commission), presumably with the recommendation of
“serious†economists and tax experts recommended establishing a territorial
tax system. And further, the President’s Job Council stated that “Many
Council members agree that the U.S. should shift to a territorial system of
taxation in order to make America more competitive in global markets.
2-4-8 Response
Tax Reform You Will Love and Hate Solves all
Economic Issues Fairly
Our tax code has been a great experiment in income and
wealth redistribution. According to a
July 2012 report
from the Congressional Research Service, in 1995 the top 10% of the country
had 67.8% of the country’s wealth while the bottom 50% shared only 3.6%
($1,912 billion [in 2010 dollars]). The bottom share eroded to 2.5% before
the Great Recession of 2007 and by 2010 it had tumbled to 1.1% ($584
billion) – (a 70% loss of $1,333 billion over 15 years). The loss of wealth
to the bottom half the country was offset by a 6.7% gain for the top 10%.
This gain of $3,558 billion over 15 years is equal to 6 times the wealth
that half the country lives on. A wealth distribution (“wealth gapâ€) of this
extreme has not been seen in the U.S. since the Great Depression of 1929
(when unemployment was also as bad). Top income tax rates were increased
from 24% to: 63%, 79%, 81%, 88% and finally to 94% in 1944 in order to
correct the economic imbalance.
The extreme distribution of wealth is problematic due
to the concurrent loss of consumer spending which drives the economy and
creates jobs. Since the Great Recession the consumer portion of our economy
has been propped up with increased government safety net spending (i.e. food
stamps, unemployment, temporary payroll tax relief, etc.) and monetary
policy has kept interest rates low. These measures have not revived the
domestic economy and export customers are hard to find in light of global
economic problems. Government efforts are not sustainable because we have a
tax code that contains $1.1 trillion in annual tax expenditures (“loopholesâ€
that reduce government revenue). The investment class gets an annual “tax
loophole subsidy†which is about the combined cost of Social Security and
Medicare now funded with payroll taxes – a 15% burden on low and middle
income workers which did not exist back in 1929.
Today payroll taxes make conditions worse than in 1929
because they add 7 ½% to the cost of each job (business share) and further
reduce consumer spending power by 7 ½% (employee share). This 15% tax on
jobs is the main reason why the economy is less resilient to recession.
Replacing payroll taxes with a 2% net wealth tax (excluding $15,000 cash and
retirement funds) is the tough medicine needed to create millions of jobs
through increased consumption. University of Chicago Economics Professor,
Casey Mulligan, estimated in September 2011 that each, “percentage-point
reduction in employers’ [payroll] costs raises employment by about a
percentage point and real gross domestic product by about 0.7 percentage
pointsâ€.
Income tax expenditures (“loopholesâ€) would be
unnecessary if the tax rate was lowered to 8% (and capital gains, estate and
gift taxes were eliminated). These changes encourage maximum business
development (by eliminating all artificial “tax†excuses against investment)
and complement the healthy negative reinforcement (“use it or lose itâ€) of
the wealth tax (which encourages productive use of capital rather than idle
consumption).
Completing the perfect tax reform plan would be a 4%
value added tax (VAT) on business and an 8% corporate income tax rate for
the most competitive business rates in the world. Foreign profits would
escape the 35% corporate rate and return to the U.S.
Let us know at www.TaxNetWealth.com if you can identify
a logical, legal or economic reason why this 2-4-8 Tax Blend would not
produce a sustainable economic recovery as promised. Otherwise let your
representatives in Washington know that the right blend of taxes can create
jobs and restore wealth and a stable economy without government spending.
Eugene Patrick Devany, JD, MPA
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