Cutting Through the Campaign Rhetoric
Shouldyou find yourself in a crowded room and badly in need of attention, screaming “FIRE” at the top ofyour lungswill achieve the desired result, but soon enough, people are going to realize that you’re full of sh*t and go back to their finger foods.
It’s no different on the campaign trail. When a candidate finds himself lagging in the polls or receiving criticism from his party, history has taught us to expect a big announcement that is sure to be popular among the masses and drive up approval ratings. Often, however, these announcements lack the necessary substance, reducing them to nothing more than empty rhetoric.
I point to two recent examples, which illustrate not only that political proclamations are often devoid of the very details that would make them meaningful, but that these sort of empty promises are not a partisan concept; rather, they’re employed equally by Republicans and Democrats.
Take President Obama’s recent proposal to cut the corporate tax rate from 35% to 28%, while broadening the tax base by eliminating “dozens” of tax preferences and deductions. While a conceptual framework was contained within the proposal, there was no detailing of those deductions on the chopping block, leaving many unanswered questions.
For example, depending on the deductions to be eliminated, corporations in certain industries may actually see their effective tax rate significantly increase, despite the 7% drop in the maximum current rate. That’s not likely to signify the type of corporate reform these particular corporations are in favor of.
And while the resulting headlines were what the president desired — “Obama Promises to Cut Corporate Tax Rates” — the nation’s tax geeks shook their collective heads and decried the missing details.
On the same day the president’s corporate tax proposal was announced, Republican candidate Mitt Romney responded with his own hollow promises of a tax cut. Seeking to quiet criticism from within his own party that his tax proposals were not progressive enough, Romney expanded on his previous promise to extend the Bush tax cuts — which would have kept the top tax rates at 33% and 35% as opposed to the 36% and 39.6% rates they are slated to return to — by pledging to cut EVERY tax bracket by 20% upon his election, signifying a tax cut every American could embrace:
| Current Rate10% | 15% | 25% | 28% | 33% 35% |
| New Rate8% | 12% | 20% | 22.4% | 26.4% 28% |
But here’s the problem: according to this report by the Tax Policy Center, tax rate reductions of this magnitude would decrease U.S. tax revenue by $900 billion in 2015 (assuming the Bush tax would have expired). [i] Now, as you may have heard, America’s already got a bit of a debt problem, so tacking another trillion on the deficit would not be prudent, and could well leave us as the largest province in the Chinese empire.
Because increasing the deficit would likely not appeal to a Republican party that is defined by its fiscal responsibility, Romney has stated that he will make up the revenue loss. Like President Obama, he has provided no insight into just how he would make up this revenue, offering only that he would — like the president — expand the tax base by eliminating certain tax preferences.
Ignoring for a moment the alarming lack of details regarding Romney’s proposal, let’s consider two potentially fatal flaws to his promise to make up $1 trillion in revenue through the reduction of tax deductions.
First, sure to be on the preference chopping block would be certain deductions and credits already slated to expire, because they wouldn’t technically be “cut,” but rather just allowed to disappear. From the Tax Policy Center:
These would include the American Opportunity tax credit for higher education, the expanded refundability of the child credit, and the expansion of the earned income credit.
What these three preferences have in common is that they are specific to low income taxpayers. Should they expire, similar to President Obama’s proposed corporate reform, some taxpayers — particularly those with income less than $50,000 — will actually see their effective tax rate increase despite the 20% cut. That doesn’t mesh with Romney’s promise that low and middle income households will not pay any more tax under his plan than they do now.
On the other end of the taxpayer spectrum, Romney could embrace the ideas posited by President Obama and begin eliminating preferences that largely benefit only the nation’s wealthiest, as this may be a more effective way to replace the $1 trillion in lost revenue. Unfortunately, tax increases aimed at the wealthyare a sure fire way inspire cries of treason from the Republican party.
Clearly, Romney’s promise to cut taxes by 20% across the board leaves him in a precarious position. If he does nothing, the deficit would skyrocket. Target the preferences enjoyed by low income taxpayers, and he breaks a previous promise and alienates a large portion of the population. Target the rich, and he alienates his own party.
Perhaps this is why presidential candidates like Obama and Romney should carefully consider the ramifications of their campaign promises before they’re announced, rather than trying to produce that memorable sound bite or headline that attracts the attention of a nation, but accomplishes little else.
[i] The deficit would increase $480 billion over a baseline in which the Bush tax cuts continued.
