Posted by StreetWise in Latest News
Mitt Romney is proposing huge tax cuts with increases in military spending while, at the same time, reducing budget deficits by slashing federal spending. What does the Romney budget mean for the average American? Who will benefit from these policies? Who will lose?
Romney is proposing huge tax cuts that mainly benefit wealthy Americans. Almost all of his tax proposals mirror those backed by his running mate, Paul Ryan. Romney would continue the so-called “job creating Bush tax cuts” although these tax cuts have failed to live up to their billing. If the Bush tax cuts are not renewed the top income tax bracket would increase from 35 percent to 39 percent.
Romney would take tax cutting much further than George Bush. He wants a 20 percent percent across the board reduction in the income tax. This would reduce the top tax bracket from 35 percent to 28 percent. The lowest income tax bracket would drop from 10 percent to 8 percent. This proposal alone would cost the federal treasury hundreds of billions each year.
Romney wants to eliminate the capital gains tax for those earning interest and dividends of $200,000 or less. His running mate, Paul Ryan, and most congressional Republicans want to eliminate the capital gains tax altogether. Since almost all of Romney’s income comes from capital gains, he would pay less than 1 percent income tax under Ryan’s budget proposals. Politically, Mitt would be skewered if he adopted Ryan’s position. But, if elected, he might go along with his party’s position on capital gains.
Romney is also proposing the elimination of the estate tax. Republicans have dubbed the estate tax as the “death tax.” As part of the Bush tax cuts, it was dramatically reduced and briefly eliminated altogether in 2010 only to be reinstated at a reduced rate in 2011 by the Democrats. Less than half of 1 percent of the population was impacted by this tax in 2011. Apparently, Romney has no problem with rich free loaders who do not work but live off their inheritance. His proposal should be dubbed the “Paris Hilton Tax Break.”
Romney wants to eliminate the Alternative Minimum Tax (AMT). This tax, originally dubbed “the millionaires tax,” was passed in 1969 to prevent the very rich from using tax loopholes to escape paying income tax. The AMT was not indexed for inflation. As inflation marched ahead since 1969, the tax affected an increasingly large portion of the population. To lessen its impact on middle class incomes, Congress has regularly applied a “patch” to raise the amount of income that is exempt from the AMT. If the AMT is eliminated, some very wealthy people will escape paying income tax, thereby, adding to Romney’s 47 percent freeloaders list.
Romney also wants to cut the top corporate tax rate from 35 percent to 25 percent. He claims that he would eliminate corporate tax breaks to make up for the lost revenue but, even if all of these corporate tax breaks are eliminated, they will not pay for the reduction that he supports. Moreover, Romney has indicated that he may reduce this tax even further. His campaign has said that he would “also explore the possibility of coupling further rate reductions with measures that broaden the income base and simplify the rules.”
All of these tax cuts would reduce federal revenue by $4 trillion over the next 10 years. Romney did say that he would help fund these cuts by closing “tax loop holes.” Which one? How much revenue would he raise? He is not saying! Some of the biggest income tax deductions are on home mortgages, health insurance premiums and charitable contributions. Eliminating these deductions would increase the tax burden on the working and middle classes. In effect, his tax policies would amount to a tax increase on lower income families.
It is just Simple Math
So how does Romney plan to pay for these tax cuts while reducing the deficit? Military spending is the biggest ticket item (24 percent) in the federal budget in 2012. Romney wants to increase defense spending 3.8 percent of gross domestic product to 4 percent. Under his proposal, the government would spend $400 billion more on defense than the Obama administration over the next four years. If the military is off limits, where will he cut spending? Spending cuts must come from somewhere. Below is a brief summary of the proportionate spending in other areas of the federal budget.
– Social Security 21%
– Medical (Medicare, Medicaid, research) 22%
– Human Services (workers comp, unemployment, food stamps, public assistance) 12%
– Education (K-12, Higher Ed, student loans and grants) 4%
– Transportation (Road, bridges, mass transit)3%
– Public Safety (police and fire protection) 2%
– Debt 6%
– General government and other spending 6%
Under Romney, Medicare would no longer be a guaranteed defined benefit program; instead it would gradually be turned into a voucher system (defined contribution program) and privatized for those under 55.
Retirees would receive a federal voucher to purchase health insurance. While the vouchers may cover the cost of premiums for some retirees, many others, if not most, would end up paying for an ever increasing portion of their insurance out of their own pockets as their health declines with age and their premiums for private insurance increases.
Romney wants to gradually increase the retirement age for Social Security and Medicare to 70. Employees would work longer, contribute more to these programs and collect less. Many, especially in physically demanding jobs such as construction and manufacturing, would likely die sooner if they are required to work until 70. Of course, this would help cut the federal deficits at the expense of the working class.
Medicaid, which serves the poor, the disabled, elderly in nursing homes and other low-income people, would be turned into a block grant program (a voucher system for state governments). States would take over the program and have more flexibility in regulating eligibility requirements and setting benefit levels. The block grant program would shift an increasing portion of the cost of Medicaid to the states, thereby cutting federal spending. As a result, either state taxes would have to increase or benefits would have to be cut as medical care costs for the disabled, the elderly and the poor rise.
While Medicare, Medicaid and Social Security are the big-ticket items to be cut under a Romney Administration, food stamps, student loans and aid to education are also on the chopping block.
The bottom line is that Romney’s policies will result in a general transfer of wealth to the top income earners and undermine the social safety net. Mega millionaires win; the rest of us lose.
Written by Tom Suhrbur