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Note: Guest blogger Kyle Buckley, a NCPA research associate, gives his thoughts on the Vice Presidential debate.
The Vice Presidential debates last night were painful to watch, and the aftermath isn’t any more reassuring. Talking heads have focused relentlessly on
body language and what should have been said, while fact checkers cherry pick data almost as impressively as the candidates themselves.
It’s disconcerting, but since taxes are sort of our thing, let’s take a look at Biden’s statement that it is “not mathematically possible” to cut taxes and see federal revenue growth.
So what exactly is the Romney-Ryan tax plan? Here are a few of the key points:
- Lower the corporate tax rate (which by the way, something that President Obama has also proposed)
- Decrease individual income tax rates by 20 percent
- Eliminate taxes on capital gains, dividends, and interest for any taxpayer with an Adjusted Gross Income (AGI) under $200,000.
- Pursue a simpler tax structure with a broader base.
Ryan seems to be equivocating on which “important preferences for middle class taxpayers” would be preserved, making it extremely difficult to estimate the viability his proposed plan to broaden the base and lower the tax rates. So instead let’s focus on the idea of growing the federal revenue streams while cutting taxes.
A historical example of this is the story of the capital gains tax. In 1997, Congress and President Clinton agreed to lower the rate from 28 percent to 20 percent, retroactive May 1997. As WSJ writer Steven Moore points out in an NCPA study, capital gains tax revenue increased from $85 billion to $100 billion from 1996 to 1997. Of course, this was a period of significant stock market gains. But even during the tumultuous decade of 2000, President Bush’s capital gains tax reduction doubles capital gains tax revenue from $56 billion in 2003 to $110 billion in 2006.
Biden references the Tax Policy Center (TPC) in his argument that Romney is raising taxes on the middle class, and cannot possibly be revenue-neutral. The TPC report suggests that Romney’s
plan would result in a 24 percent cut in projected revenue by 2015 ($900 billion). Unfortunately, the TPC looks at the Romney plan in a vacuum, neglecting the impact of tax reform on the economy as a whole. The American Enterprise Institute and Heritage both acknowledge that the TPC doesn’t account for GDP growth as a result of reforms. This is important. Gerald W. Scully, a former NCPA senior fellow, notes that as we move closer to the growth maximizing tax rate (as Romney plans to do), GDP and Federal revenue increases, while income inequality decreases.
Having been in the Senate since 1972 and experiencing all manner of tax policy (from both sides of the aisle), Senator Biden should know better.