GOP presidential candidate Mitt Romney has a plan to revamp the entire U.S. tax code and change the nature of American capitalism. But he can't tell us what his plan is just yet.
Romney has revealed parts of his plan, such as his goal of cutting the tax rate in every bracket by one-fifth, slashing corporate taxes, and cutting government spending. But there are some important policies-to-be-named-later.
Romney acknowledges that cutting taxes as he proposes would leave the government short of revenue, which would have to be made up somehow. To do that, he says, he'd "limit deductions and exemptions for people at the high end." But which deductions? By how much? And what if those limitations aren't enough to keep the government solvent?
Don't worry, Romney says. Those are mere details. No need to get into those right now.
Under his plan, Romney insists, the wealthy would pay roughly the same amount of taxes they pay now, since their rates would go down but the tax breaks that help lower their tax burden would be less generous. Everybody else's taxes would fall for real, Romney says, without any corresponding cutbacks in deductions. Meanwhile, a sudden burst in economic growth would allow Romney to raise defense spending and maintain other programs Americans deem important.
If you trust politicians, this is all very convenient, because you won't have to waste any time figuring out the tedious details of complex tax reform leading up to the November election. If you don't trust politicians, however, the blanks in Romney's plan are a little problematic, for four reasons.
First of all, any plan that ought to be suitable for the president to send to Congress after he's elected, and then impose on the entire country once it is passed into law, ought to be fit to explain to voters before the election. Voters should treat promises from politicians the same way they approach any high-stakes commitment: If the details are fuzzy, insist on clarity or walk away from the deal.
Second, rich people are citizens too, and if Romney's threatening to raise—sorry, rearrange--their taxes, shouldn't he explain that to them the same way he'd have to explain something that directly affected the middle class? Or do Romney and his fellow blue-bloods have some kind of mind meld that allows Romney to telepathically signal his intentions, without having to rely on the media or his Twitter feed?
Third, middle-class voters tend to be suspicious of tax hikes on the wealthy because they fear that sooner or later, those tax hikes will trickle down to them. Many ordinary people imagine themselves as wealthy some day, so a politician who raises taxes on the rich is also raising taxes on a lot of other people, in their own minds, at least. That means Romney actually does need to explain those new limits on deductions and exemptions to ordinary people, even if he says they won't be affected.
Fourth, there's always the possibility that Romney is withholding the details of his tax plan because he's afraid voters won't like what they hear. Most economists say that balancing the federal budget is going to require much steeper tax hikes, on many more people, than Romney has proposed. Conservatives counter that the job can be done largely with spending cuts—which might be true on paper but is a pipe dream in reality, since Democrats and many voters would rally against the deep cuts in social programs and basic services that such cuts would entail.
The Bowles-Simpson budget commission that President Obama established to come up with ways to pay down the mushrooming national debt detailed the sorts of tax hikes and benefit cuts it will take to get the federal budget under control. It isn't pretty. Like Romney, the Bowles-Simpson commission advocated lower tax rates as a way to simplify the tax code and stimulate economic growth. But it also said that under such a plan, deductions such as those for mortgage interest, employer-provided healthcare, charitable donations, and a few other things should be reduced—for everybody, not just the wealthy. The plan would also eliminate 150 other exemptions.
Altogether, a combination of lower tax rates and fewer deductions would equate to a tax increase for nearly everybody. The average taxpayer, under the commission's plan, would fork over an extra $1,746 per year to Uncle Sam—a 9.3 percent tax hike. Every income quintile would pay more, with none exempted. On top of that, the commission proposed a 15-cent-per-gallon increase in the federal gasoline tax, along with many restrictions on federal spending.
The Bowles-Simpson plan is widely considered a plausible guide for fixing the debt and reforming the tax code because it identifies the painful tradeoffs that will be needed, instead of sugarcoating them. It also advocates a 3-to-1 ratio of spending cuts to tax hikes, making it more conservative than other reform plans that propose a ratio closer to 1-to-1. The fact that some Democrats and some Republicans oppose the plan indicates that something about it is right.
Romney seems to be saying that he can fix the tax code and pay down the debt with something like a 10-to-0 ratio of spending cuts to tax hikes, or maybe it's 10-to-0.5, if you count lower deductions as a tax hike. But more than that, it sounds like there's something about his tax plan he just doesn't want us to know. Not yet, anyway. Voters might want to ask: If not now, when?
Rick Newman is the author of Rebounders: How Winners Pivot From Setback to Success. Follow him on Twitter: @rickjnewman.