Posts Tagged ‘presidential candidates’

I’m not here to provide color or commentary on much of the debate; after all, I have no idea whether Hillary Clinton can fix Obamacare, or whether Donald Trump’s policy of “sneak attacks” is enough to overcome ISIS, or whether either party has a clue on how to handle immigration.

But I know tax law. And for that reason, I felt compelled to correct one very important — and very LOUD — assertion Republican candidate Trump made during last night’s debate about Democratic candidate Hillary Clinton’s tax proposal.

Continue reading on Forbes.com.


Authored by Tony Nitti, Withum Partner and writer for Forbes.com.

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In the not-too-distant future, it’s entirely possible that jet packs will replace Segways as America’s preferred mode of personal travel, online dating will create matches so perfect as to eliminate the thrill of romantic conquest, and Republicans will rule the White House, Senate, and House of Representatives.

Martin Sullivan, who writes about tax as well as anyone, takes on the final possibility and reaches a surprising, but completely accurate, conclusion: even if Mitt Romney wins the presidential election this November and Republicans keep the House and retake the Senate, Romney’s proposed sweeping tax cuts are unlikely to become law.

And why not?

Because as we discussed here, tax cuts come at the price of reduced revenue, and given the current and budgeted deficit, lost revenue is something America can ill afford at the moment.

As a reminder, Romney is proposing to extend the Bush tax cuts, while also tacking on a 20% across-the-board reduction to each marginal rate. In addition, he would eliminate the tax on interest, dividends and capital gains for taxpayers earnings less than $200,000, eliminate the estate tax and the AMT, and cut the corporate rate to 25%.

Even if Democrats continue to control the Senate, Romney would be able to circumvent having his proposals blocked in the Senate by presenting them as “budget reconciliation bills,” essentially giving Romney carte blanche to enact any desired tax legislation.

But as Sullivan posits, Romney’s cuts are unlikely to become law due to their staggering price tag: $480 billion in lost revenue in 2015 alone. To enact his proposals without adding to the deficit, Romney would have to generate tax revenue elsewhere. To that end, he has privately disclosed his desire to broaden the tax base by eliminating some popular deductions, but Romney would have to do away with all of the popular deductions listed below, and many more, to cover the cost of his cuts. These deductions represent a mix of those backed by special interest groups (the mortgage deduction), and those that promote philanthropy (the charitable contribution deduction.)  As a result, as Sullivan points out, “there is nothing in history to suggest that this is even a remote political possibility.”

Table 1. Official Revenue Estimates of Major Tax Expenditures

Tax Expenditure Fiscal 2015

Deduction for mortgage interest $113 billion
Charitable deduction $57 billion
Deduction for state and local taxes $85 billion
Exclusion for employer-provided health benefits $176 billion

Source: Joint Committee on Taxation, ‘‘Estimates of Federal Tax Expenditures for Fiscal Years 2011-2015,’’ Jan. 17, 2012, Doc 2012-894, 2012 TNT 11-21.

Sullivan goes on to nicely summarize the reality of our current economic morass and its impact on tax policy:

And that means that even if Romney wins and Republicans are running Congress, it is unlikely Washington will go on a tax cutting frenzy. Republicans may be unconstrained by Democrats, but they will be constrained by themselves. Basebroadening tax reform is not a battle of partisan politics but of special interest politics. And special interests will still be alive and well after a Republican sweep. If the Republicans try anything too gimmicky with how they score the tax cuts, alarm bells will sound in the bond market — something a president with close ties to Wall Street is unlikely to tolerate.

No doubt there will be spending cuts in social programs, but one must believe most of the savings will be devoted to deficit reduction. This is not 1981. This is not 2001. The next president, regardless of whether it is Obama or Romney, must put federal finances on a sustainable path. It is hard to see how a President Romney could propose a plan that significantly cuts taxes. If his plan must be revenue neutral, or close to it, the amount of rate reduction it can achieve will be severely limited.

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Public perception is a silly thing. President Obama and Republican presidential candidate Mitt Romney have both publicly released their 2011 tax returns (estimated in Romney’s case), and the response to each man’s resulting tax liability can best be summarized as:  

Obama = 23.4% effective tax rate, man of the people

Romney = 15.4% effective tax rate, scourge of humanity

But the truth is, both men simply played the hand they were dealt, properly reporting their items of income and deduction in accordance with the tax law. Sure, Romney’s income was largely subject to the preferential 15% tax rate currently applied to qualified dividends and long-term capital gains, but that’s no fault of his own; rather, it’s a product of legislation enacted before Romney even became a political figure.

Don’t believe me? Check out this illustrative, interactive flowchart prepared by the geniuses over at the Tax Policy Center, showing exactly why each candidate paid what they paid in federal income tax:


As I’ve written before, you’re certainly entitled to be angry that Romney paid a mere 15.4% tax rate on $21,000,000 of adjusted gross income; just don’t be mad at Romney. His tax rate was not the result of complicated tax planning, he was simply the beneficiary of the nonsensical tax loophole afforded private equity fund managers in the form of “carried interest,” compounded by the 15% rate on certain investment income enacted by President Bush in 2001 and 2003.

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