There are at least three approaches to tax policy a candidate may take in an election campaign:
- Use the tax code to offer limited giveaways that do nothing to improve the economy, but offers small benefits to the maximum number of voters. This is the Obama approach.
- Pursue major tax reforms combined with downsizing the government. This is the Ron Paul approach. Paul notes on his campaign website: "True tax reform is as simple as cutting or eliminating taxes" and "the real enemy of tax reform is the spending culture in Washington . . . we will never have tax reform in this country until Congress changes its spending habits."
- Call for tax cuts that will spur economic growth and benefit all taxpayers. This is the Mitt Romney approach, as we will discuss here.
The Romney campaign released a "blueprint" on tax policy yesterday. The blueprint is just seven short bullet points, but they are all excellent points. Here they are in brief with my comments.
- Make the Bush tax cuts permanent. Great. Extending the income tax rate cuts and the dividend and capital gains tax cuts is important. But I'd swap the Bush child tax credits for further supply-side tax cuts.
- Make additional cuts to individual income tax rates. Great. That would improve economic efficiency and growth. I'd take this further and collapse the current rates into a flat rate or a two-rate structure.
- Enact a zero tax rate on interest, dividends, and capital gains for those in the middle class. That's a move in the right direction, but better to eliminate double-taxation on all savings.
- Eliminate the estate tax. A no-brainer. The current estate tax damages growth, probably doesn't raise any money, and enriches tax lawyers.
- Cut the corporate tax rate. Another no-brainer. The average corporate income tax rate in Europe is 24 percent. The average federal plus state rate here is 40 percent.
- Oppose Social Security tax increases. Romney’s right: tax increases won’t solve the problems with Social Security, as explained here.
- Make individual medical expenses deductible. A move in the right direction to equalize the tax treatment of individual and business health expenses.
All in all, candidate Romney has outlined a very pro-growth tax agenda. His plan contains numerous supply-side provisions that would increase economic efficiency and raise incomes. Kudos for proposing reforms that would benefit all Americans and resisting the impulse to craft useless tax giveaways, which is the approach of candidiate Obama.
Now if we could combine the Romney supply-side approach with the Paul downsizing approach, we would really be getting somewhere.