October 15 2012

Taxes: A Women's Issue

Hadley Heath

Recently I was talking about the upcoming election with a couple of my girlfriends.  Both are young and single (like me).  One friend told me she would be basing her vote on who would reduce her tax burden or keep it lowest.

This may blow the minds of some Hollywood stars and liberal feminists, but many young women are more interested in voting with their pocketbooks than their “lady parts” as some ads have suggested.

My friend was displeased with reports that Mitt Romney would raise taxes on the middle class if he were elected President.  Of course it’s a bad idea to raise taxes while our economy continues to struggle.  And a Tax Policy Center paper, widely cited by the Obama Campaign, suggests that Romney’s plan to lower tax rates across the board would be impossible if he wanted to keep the plan deficit-neutral and avoid eliminating deductions for the middle class. 

Paul Ryan defended Romney’s tax plan multiple times during the Vice Presidential debate, pointing to “six studies” that show that show that Romney’s plan would not hike taxes for people in the middle class.  Biden, on the other hand, echoed the Tax Policy Center study, saying it was mathematically impossible to do what the Romney/Ryan camp is proposing.

Ultimately the goals of any tax policy should be economic growth, simplicity, clarity, and fairness.  The tax code as it currently exists stifles economic growth, is far from simple, terribly unclear and in many ways unfair.

So, is it “mathematically possible” to cut tax rates without eliminating middle class deductions?   The answer is clearly yes.  But the next question is, “By how much?”

The “how much” depends on many variables (like economic growth), and how far Romney is willing to go in tweaking other aspects of the tax code as they relate to people at the top of the income tax bracket.  It also depends on the cutoff: What do we consider “middle class”?  Is someone earning $190,000 per year part of the middle class?

Romney says he wants to lower marginal tax rates by 20 percent across the board.  That would be a huge reduction in rates.  The Tax Policy Center calculated that this reduction, along with other tax decreases Romney suggests (like eliminating the Death Tax,) would result in $360 billion in reduced revenue for the national government.

The paper goes on to say that eliminating all kinds of deductions for the wealthy (which TPC says is $200,000 and up) would still leave a difference of $86 billion – which they say would necessarily have to be paid by the middle class (or people earning under $200,000) in order to maintain deficit neutrality.

On Forbes, Avik Roy points out five considerations the Tax Policy Center should have taken into account in their study. 

  1. The deduction for interest income on state and local bonds for high earners
  2. The deduction for income related to the inside buildup of life-insurance products for high earners
  3. The “step up” change for the treatment of capital gains at death for high earners
  4. The repeal of ObamaCare’s spending in addition to the repeal of ObamaCare’s taxes for high earners
  5. Properly accounting for economic growth

There are various analyses that support the idea that we can lower tax rates and eliminate deductions for high earners in a way that maintains deficit neutrality and doesn’t result in a middle class tax increase.

As Avik Roy points out:

In addition, it’s not obvious why someone making $200,000 is considered “rich” while someone making $190,000 is not. The arithmetic would work out quite differently if “middle- and low-income households” were defined as those with less than $150,000 or even $100,000 in income.

So even if we just accept all the assumptions in the TPC study, I think it’s safe for me and my (truly) middle class girlfriends to assume we are not close enough to the top of the income tax brackets yet to be affected by any deduction eliminations. 

The idea behind reducing tax rates is to spur economic growth, and the potential for more opportunities, including more jobs, promotions, and wage increases, is something that’s important to women voters this fall.  It is mathematically possible to do this in a deficit-neutral way: we just have to be mindful of which deductions are on the table, how much rates can be cut, and where we would draw the cutoff between high earners and the middle class.

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