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So Stephen Colbert says (after cloning himself in two):
RED-TIE STEPHEN: Hey, [Romney] is looking out for the middle class.
BLUE-TIE STEPHEN: He's promising a 20% tax cut for the top 1%.
RED-TIE STEPHEN: Ah, but he's also promising to close their tax loopholes, so they'll still pay the same amount.
BLUE-TIE STEPHEN: Then... why cut their taxes?
I've been wondering the same thing: if we're cutting tax rates by 20%, but also cutting enough tax loopholes that rich people are paying about the same amount as they are now, and middle-class people are paying no more than they are now, and it won't increase the deficit, then what's the point of the tax cut?
There actually is an answer to that: loopholes tend to guide money in particular directions in order to avoid taxes, directions which might not have been the most efficient use of that money. So in theory, closing loopholes in exchange for lower tax rates should make the economy as a whole slightly more efficient. Probably not dramatically more efficient, and there's no reason to believe making the economy as a whole more efficient will put people back to work -- indeed, it might cost jobs.
There's another problem, at least if you're Romney. One of the biggest loopholes, with the most dramatic distorting effects on how people spend and invest their money, is the different tax rates for salary income and interest/dividend/inheritance/etc. income. If you have a choice between an investment that pays $100,000 in dividends, and a job that pays $120,000 in salary, the latter presumably produces more value in the economy, but the tax code gives you an incentive to choose the former instead. Romney knows that very well: he's brought his own Federal tax rate down to about 15% by shuffling most of his income into interest and dividends rather than paychecks. And it's a loophole that Romney has promised to enlarge by eliminating the estate tax, so his kids can inherit billions of dollars from him tax-free.
I hope somebody at tonight's Town Hall (which is taking place about a mile from my office) asks him about closing those loopholes.
RED-TIE STEPHEN: Hey, [Romney] is looking out for the middle class.
BLUE-TIE STEPHEN: He's promising a 20% tax cut for the top 1%.
RED-TIE STEPHEN: Ah, but he's also promising to close their tax loopholes, so they'll still pay the same amount.
BLUE-TIE STEPHEN: Then... why cut their taxes?
I've been wondering the same thing: if we're cutting tax rates by 20%, but also cutting enough tax loopholes that rich people are paying about the same amount as they are now, and middle-class people are paying no more than they are now, and it won't increase the deficit, then what's the point of the tax cut?
There actually is an answer to that: loopholes tend to guide money in particular directions in order to avoid taxes, directions which might not have been the most efficient use of that money. So in theory, closing loopholes in exchange for lower tax rates should make the economy as a whole slightly more efficient. Probably not dramatically more efficient, and there's no reason to believe making the economy as a whole more efficient will put people back to work -- indeed, it might cost jobs.
There's another problem, at least if you're Romney. One of the biggest loopholes, with the most dramatic distorting effects on how people spend and invest their money, is the different tax rates for salary income and interest/dividend/inheritance/etc. income. If you have a choice between an investment that pays $100,000 in dividends, and a job that pays $120,000 in salary, the latter presumably produces more value in the economy, but the tax code gives you an incentive to choose the former instead. Romney knows that very well: he's brought his own Federal tax rate down to about 15% by shuffling most of his income into interest and dividends rather than paychecks. And it's a loophole that Romney has promised to enlarge by eliminating the estate tax, so his kids can inherit billions of dollars from him tax-free.
I hope somebody at tonight's Town Hall (which is taking place about a mile from my office) asks him about closing those loopholes.
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