Radical Romney Tax Plan Could Be a Difference Maker in GOP Race

Eliminating cap-gains taxes for middle class adds needed meat to thin Republican presidential policy debate.


You know you might be in trouble as a political party when an archterrorist and murdering madman seems to have more thoughts about domestic policy than you do. In his recent video rave, Osama bin Laden had plenty to say about high U.S. taxes and the mortgage credit crunch. The latter issue has been all but absent from the GOP presidential campaign. As for the former, front-runners Rudy Giuliani, Mitt Romney, Fred Thompson, and John McCain have said little more than that they would extend the 2001 and 2003 Bush tax cuts on income and investments, plus keep the expanded child tax credit, instead of letting them expire at the end of 2010.

But that idea, whatever its economic soundness and positive pro-growth aspects, doesn't really seem to help voters much in the here and now–or at least in 2009. It looks to the past–these guys credit the tax cuts for boosting the economy in the first part of the decade. And it also looks to the future–the candidates warn of dire economic consequences should the cuts expire and taxes rocket higher in 2011. Yet what about helping folks in the present? (Even dealing with the alternative minimum tax is about preventing something bad from happening in the future, plus the Dems want to do the same thing.)

Romney may have begun to address that issue–and differentiate himself from his rivals–with his populist-yet-pro-growth Middle Class Savings Plan, the details of which he recently released. As he wrote in the New Hampshire Union Leader:

I have proposed changing the rate of taxation on capital gains, dividends and interest to 0 percent for middle class Americans. ... In 2003, we passed major cuts in the tax rate on capital gains and dividends, instituting a new, lower top rate of 15 percent. Many Democratic critics of this tax cut claimed that cutting rates would blow a hole in our budget and hurt our prosperity. In fact, the opposite occurred. ... The rate of economic growth in our economy more than tripled, going from 0.8 percent in the two years before the rate cuts to 3.1 percent in the two years following the tax cuts. Capital gains tax receipts actually increased from $58 billion in 2002 to $103 billion in 2006. ... Under my plan, any taxpayer with Adjusted Gross Income of under $200,000 would pay a tax rate of absolutely 0 percent on all of the income they earn from their savings. This will allow over 95 percent of American families to save and invest tax-free without worrying about the federal government reaching into their pockets and snatching a share of their savings income each year.

Romney also smartly links his plan to the mortgage credit crunch:

Recent difficulties in the housing market offer another important reason for helping more Americans save and invest. Much of the recent activity and appreciation in the housing market was driven by the widespread use of new mortgage instruments that allowed homebuyers to purchase houses without putting up any down payment and using low upfront payments that would later increase. As we face a new reality in the housing market with much tougher lending standards, these no-money down mortgages will no longer be available. The traditional practice of saving for a down payment for a home will be the new standard practice. We must keep the American dream of home ownership reachable by middle class Americans. My middle class savings proposal will allow American families to more quickly save the sums necessary for down payments on homes.

How will the rest of the field respond? Well, McCain, who voted against the 2003 investment tax cut, certainly seems more personally interested in eradicating government waste and controlling spending rather than cutting taxes. Giuliani says he will come up with a tax simplification plan but seems reluctant to commit to any additional tax cuts beyond dispensing with the estate or death tax. Not sure what Fred Thompson is going to come up with, but it's hard to see how as president he could push bipartisan entitlement reform–one of his big goals–through a Democratic Congress without there being a tax hike, such as raising the earnings cap, somewhere in the policy mix. In any event, Romney is proving to be a bit of an "idea man" in a Republican race that has shown little bold or original thinking.

Thompson, Fred
Romney, Mitt
McCain, John
Giuliani, Rudolph

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