Today I am taking a look at the tax policies of Mitt Romney. Unlike President Obama, Romney doesn't have a track record to run on regarding taxes. We know he pays an extremely low tax rate for his income level and he is very rich. His tax proposals are different from President Obama's, so lets dive in and peel back the layers.
Reducing Taxes
Mitt Romney proposes reducing taxes as the solution to the nations fiscal problems. His tax cuts are rather significant. The major cuts are:
- Reduce tax rates in every current tax bracket by 20%. This will put more money in every taxpayers pocket.
- Eliminate taxes on the investment income of taxpayers with adjusted gross income of less than $200,000. This should encourage saving and investing by the middle class.
- Keep capital gains rate at 15%. This will encourage investing for everyone.
- Interest and dividends tax fixed at 15%. This is a big break especially for seniors on fixed incomes.
- Eliminate the Alternative Minimum Tax (AMT). This saves CPA's a big headache. I hate explaining AMT. AMT impacts the upper middle class and the "rich" as defined by the Obama administration.
- Eliminate the estate tax. I love the elimination of the estate tax. I think it is double taxation. Estate taxes leaves the successful family business no choice but to use complicated estate tax planning structures so their business can pass on to their children without being crushed under the punitive estate tax
- Reduce the corporate tax rate to 25%. I might consider shifting some of my clients to C corporations if this occurs.
As a small business person this looks really good to me!!!! But wait......he is going to.......
Reduce Deductions!?!?!
Mitt Romney says he will reduce many deductions but has yet to say which deductions he will eliminate and for whom. This is a major detail that he is omitting. How do you bring in the same tax dollars without taking away a bunch of deductions?
I believe he is short on details because if he begins to tell people his proposals there will be lots of fear among the tax paying middle class and the spin put upon his plan by the Democratic party will end his chances to become President.
Once his proposal for reduced deductions becomes public, everyone will be calculating their taxes to see if the legislation will keep them tax neutral or increased taxes. Remember when the Texas Franchise Tax was moved from a tax based upon income to a tax based upon gross margin? There were some winners and some losers but most stayed the same. However, after the smoke cleared, the new margin tax did not bring in as much money as the state had hoped.
It Doesn't Add Up
I have to agree with the Congressional Budget Office, the Tax Policy Center and everyone else who criticizes Mitt Romney's tax plan. It doesn't add up. Until everyone knows the extent of the elimination of deductions, it is impossible to say whether this is good or bad.
Mitt Romney is telling us only the good part of his plan. This is what everyone wants to hear. This is what gets politicians elected. The reality is deductions have to be eliminated across all tax brackets to make this plan work. With a divided Congress, this plan has little chance of passing.
Obama or Romney?
During the next two years, there will be a big debate on what to do with our country's fiscal mess. I hope whoever is President does not increase taxes and the regulatory burden on our nations small businesses. After all, small businesses are the greatest job creators, not the big businesses. It is small business jobs that are lost to over seas competitors, not just big businesses.
I know many of you have picked your "guy" already. These letters are just my attempt to shed some light about our Presidential candidates and their tax proposals. I am not trying to influence your vote one way or the other. I am just trying to set you up with an "I told you so" when your candidate starts proposing changes to taxes that affect you.
My Final Thoughts on the Election
I hope that whoever becomes President realizes they do not have a mandate to ignore what the people who did not vote for them want. If President Obama is reelected, he will need to soften his tax increase rhetoric and listen to the majority in the House of Representatives. If Mitt Romney is elected, he will have to listen to the majority in the Senate and seek compromise. Reaching across political lines is the only way our nations issues can begin to be addressed. Each political party will not be 100% happy with each piece of legislation but at least they will be moving forward and hopefully, it will be in a fiscally responsible way.
Stay tuned as only what happens in the next four years will tell the story!!!