The Claim:

Romney and Ryan's plan for lowering taxes and balancing the budget fails the basic "arithmetic" test.

The Truth:

Wrong -- it's the liberals who are bad at math.


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Mitt Romney and Paul Ryan plan to fix the tax system by lowering tax brackets and leveling the playing field to accomplish three important goals:

  1. Help balance the budget
  2. Address the fact that almost 50% of people pay no federal income tax
  3. Allow job creators to keep more of their money so they can invest it in doing what they do best -- creating jobs.

Economic pundits such as the far-left Tax Policy Center have claimed that their tax plan can't be "revenue neutral" -- that is, it will increase the deficit -- unless taxes are raised significantly on the middle class through the elimination of significant tax deductions and credits. Factcheck.org, in a stunning display of simply not getting it, even published a hit piece called Romney's Impossible Tax Promise.

We'll get to the finer details in a moment. But first we'll address the fundamental misunderstanding that liberals have about supply-side economics: if you tax job creators less, they'll produce more. Job creators are taxed at a lower percentage, but they'll contribute a higher dollar amount because their businesses will do better.

The naysayers who tried to throw cold water on the Bush tax cuts didn't understand this, and they were proven wrong. This is what Vice President Dick Cheney meant when he said that "deficits don't matter" when it was pointed out that the Bush tax cuts were not immediately revenue-neutral: while they would increase the debt in the short term, the net result would be that eventually it would be revenue-positive.

While the Bush tax cuts are not yet revenue positive, supply-side economists understand that this is because the plan takes time. It's only been ten years since the Bush tax cuts have taken effect. This is, we believe, why Romney will cut taxes even more: to accelerate the process.

You'll hear impatient liberals trot out the two same old complaints:

"Sure, corporations are doing well, but they're just moving jobs overseas. They're doing nothing to help the American workers."

This misses the point. The tax cuts have been successful: corporations are making more money. And, they're contributing more to the US economy in the form of more tax dollars (but at a lower tax rate). Corporations have a fiduciary responsibility to produce their products at the lowest possible price, and if American workers aren't willing to step up, then companies will do what they have to.

"The gap between executives and workers is at its highest ever. Company owners are lining their pockets, and not investing in workers."

This also misses the point. While it's correct that executive salaries are at their highest in modern history, those executives do pay taxes on those compensations. And when companies maximize profits, stock prices go up, and stockholders -- many of whom are American citizens -- pay taxes on those capital gains.

The supply-side math completely addresses the question of revenue neutrality -- and, in fact, supply-side economists state that the Romney tax plan will go better than merely neutral, and in fact raise revenue and in turn help balance the budget.

Before we cover the changes to the tax code that will help make the new tax system revenue-positive, let's first go over the details that the Romney campaign has given so far.

President Romney will:

  • Lower the marginal rates by 20%: this helps everybody.
  • Make permanent the current tax rates (established by Bush) on interest, dividents and capital gains: this helps job creators. Allowing the capital gains tax to return to 20% from 15% would seriously damage the economy.
  • Eliminate the death tax (also known as the "estate tax"): this has long been a sore point for job creators. The death tax exclusion is currently $5.12 million, but if the Bush tax cuts expire, it will return to $1 million in 2013. Many, many job creators leave behind estates of $1 million, or even $5.12 million or more, and the government shouldn't get this money.
  • Repeal the Alternative Minimum Tax, or AMT: the AMT applies primarily to high earners. This has long been a thorn in the side of job creators, and has stifled innovation and growth.

Again, "how will all of these be paid for?" is the wrong question to ask, as liberalnomics ignores the growth in the economy that these cuts will create. But we have a few clues as to how President Romney will simplify the tax code to bring in more revenue as an offset.

One is in this interview that Mitt Romney gave to Diane Sawyer. In it, he stated that he will eliminate the mortgage interest deduction for second homes.

But don't panic -- this isn't as bad as it seems. This won't hurt job creators, as they often pay cash for properties, and thus can't deduct mortgage interest anyway.

Sources