Mitt Romney released this economic plan called "Restore America's Promise: More Jobs, Less Debt, Smaller Government" on February 22, 2012.
[Editor's Note: Click here for more CFR 2012 campaign resources, which examine the foreign policy and national security dimensions of the presidential race.]
Increasing economic growth, employment, and incomes is a cornerstone of Mitt Romney's policy agenda. Faster growth creates the jobs and generates the incomes to fund the aspirations of American families, the opportunities of American businesses, and the priorities of America as a nation.
In September 2011, Romney introduced the most detailed plan for economic growth and job creation of any presidential candidate. Two months later, Romney proposed groundbreaking reforms to cut spending, move the nation toward a balanced budget, and strengthen both Medicare and Social Security.
Today, Romney expands on his existing plans to restore America's promise by introducing a bold, pro-growth proposal to cut taxes. This proposal for fundamental tax reform cuts marginal rates by twenty percent for individuals, broadens the tax base, and simplifies the code. When considered as a whole, Romney's policy prescriptions will jumpstart job creation, address the debt crisis, and make the federal government smaller, simpler, and smarter.
"America is not seeing robust economic growth because such growth is impossible in the policy environment created by President Obama," said Romney. "Rapidly rising federal spending and debt threatens our economic future, and the President has responded by proposing the largest tax increase in history. The result will only be less growth, fewer jobs, and more of the uncertainty that leads U.S. business leaders to sit on cash rather than put it to work."
Addressing this problem requires that America turn away from the Obama administration's unprecedented increases in taxes, spending, and debt. Instead, government spending must be tamed, and the tax system must be reformed to create jobs and increase wages, while still raising the revenue needed for the nation's priorities.
"The right way forward is a flatter, fairer, simpler tax system that generates the revenue we need to fund a smaller government that is restrained to its historical size," said Romney. "My plan sends signals of stability to business leaders and investors around the world, conveys a process for accomplishing these goals, and draws on my leadership skills and real-world experience to integrate and implement a comprehensive economic policy."
Romney presented the details of his plan:
Mitt Romney's Bold, Pro-Growth Tax Cut Proposal
Reducing and stabilizing federal spending is essential, but breathing life into the present anemic recovery will also require fixing the nation's tax code to focus on jobs and growth. To repair the nation's tax code, marginal rates must be brought down to stimulate entrepreneurship, job creation, and investment, while still raising the revenue needed to fund a smaller, smarter, simpler government. The principle of fairness must be preserved in federal tax and spending policy.
Part One: Jumpstart Pro-Growth Changes In Individual Taxation
America's individual tax code applies relatively high marginal tax rates on a narrow tax base. Those high rates discourage work and entrepreneurship, as well as savings and investment. With 54 percent of private sector workers employed outside of corporations, individual rates also define the incentives for job-creating businesses. Lower marginal tax rates secure for all Americans the economic gains from tax reform.
- Make Permanent, Across-The-Board 20 Percent Cut In Marginal Rates. This bold stroke reduces the tax on the next dollar of income earned for all taxpayers. The new top rate of 28 percent returns to the top rate signed by President Reagan in 1986.
- Pro-Growth. These tax cuts – relative to President Obama's proposal to raise the tax rates on the most successful business owners – will increase wages in non-corporate businesses by 6 percent, increase investment by 10 percent, and increase business receipts by 16 percent. (Robert Carroll et al., "Income Taxes and Entrepreneurs' Use of Labor," Journal Of Labor Economics, 4/2000; Robert Carroll et al., "Entrepreneurs, Income Taxes, and Investment," in Does Atlas Shrug? The Economic Consequences Of Taxing The Rich, 2002; Robert Carroll et al., "Personal Income Taxes and the Growth of Small Firms," Tax Policy And The Economy, 2001)
- Fiscally Responsible. Government cannot continue to increase irresponsibly the size of annual deficits. Stronger economic growth and reductions in spending will help to ensure that these tax cuts do not expand deficits. In addition, higher-income Americans in particular will see limits placed on deductions, exemptions, and credits that are currently available. The result will be a pro-growth tax code that still raises the necessary revenue, retains the existing progressivity, and ensures that middle-income Americans see real tax relief.
- Environment For Job Creation. President Obama has presided over endless debates about temporary tax provisions that have consumed Washington and left businesses and workers uncertain of what they will owe the government. The tax system must not only be flatter, fairer, and simpler, but also stable. Returning policy certainty to pre-Obama levels could create 2.5 million additional jobs in less than two years. (Scott R. Baker et al., "Policy Uncertainty Is Choking Recovery," Bloomberg News, 10/5/11)
- Promote Savings And Investment For The American People. Mitt Romney will maintain the current 15 percent rate on income from qualified dividends and capital gains. He will cut taxes further on lower- and middle-income Americans by ensuring that families with an annual income below $200,000 will pay no taxes on income from capital gains, interest, and qualified dividends. These low tax rates will create powerful incentives for Americans to save and invest, while spurring business investment and economic growth.
- Compare President Obama. The President's proposal raises dividend tax rates from 15 percent to more than 43 percent and capital gains tax rates from 15 percent to almost 24 percent with adverse effects on Americans' equity investments and on business investment.
- Abolish The Death Tax. Eliminating the death tax will allow families to pass assets between generations without complicated tax avoidance schemes and without breaking up family businesses.
- Compare President Obama. Under Obama, the death tax is slated to rise from 35 percent to 55 percent in 2013.
- Repeal The Alternative Minimum Tax (AMT). The AMT was originally implemented in the 1970s with the purpose of ensuring that the wealthiest of Americans could not artificially reduce their tax burden. But if Congress fails to pass the annual AMT patch, many middle-income Americans will become ensnared in the AMT trap. It should be repealed immediately to eliminate harmful distortions in the tax code, and replaced with a simpler tax system that reduces tax avoidance schemes.
Part Two: Make The Corporate Tax System Globally Competitive
The U.S. economy's 35 percent corporate tax rate is among the highest in the industrial world, reducing the ability of our nation's businesses to compete in the global economy and to invest and create jobs at home. By limiting investment and growth, the high rate of corporate tax also hurts U.S. wages.
- Cut The Corporate Rate To 25 Percent. It is vital that the U.S. move to quickly reduce the corporate tax rate and put American companies on a level playing field. The high U.S. corporate tax rate handicaps the nation's overall economy in competition with the rest of the world.
- Pro-Growth. High corporate income taxes have been shown to have a particularly high negative effect on GDP and economic growth rates. Reducing the corporate tax rate will not only create jobs, but also boost wages. A 10 percent rate cut raises wages by an estimated 9 percent. (Scott A. Hodge, "Ten Benefits of Cutting the Corporate Tax Rate," Tax Foundation, 5/2011)
- Fiscally Responsible. Broadening the corporate tax base, accompanied by greater revenue from increased economic activity and greater corporate investment in the U.S., will cover the cost of the reduction in the corporate tax rate.
- Strengthen And Make Permanent The R&D Tax Credit. This credit promotes innovation in both manufacturing and non-manufacturing industries, and helps businesses plan their innovation spending. With a strong, permanent credit, companies will now be able to invest for the future with confidence.
- Switch To A Territorial Tax System. The United States taxes income on a worldwide basis, regardless of where it is earned. This worldwide system of taxation sets the U.S. apart from most other OECD countries, which have converted to territorial systems of taxation. Japan and the United Kingdom are two countries that recently traded their worldwide tax systems for territorial systems. This switch will promote U.S. interests in two key ways:
- Encourages Domestic Investment Of Foreign Profits. The U.S. system of worldwide taxation (particularly when coupled with the U.S.'s high corporate rate) has the perverse effect of making reinvestments of foreign profits in the U.S. more costly than reinvestments made abroad. A territorial system will avoid the threat of further taxation from precluding a decision to reinvest profits at home.
- Makes U.S. Companies More Competitive In The World Market. The worldwide system burdens the foreign operations of U.S. companies with an added layer of tax not borne by their foreign competitors that are headquartered in the local markets or in other countries with territorial tax systems. This second layer of tax makes U.S. companies less competitive in foreign markets. A territorial system that helps U.S. companies compete in foreign markets will create jobs in the U.S. as well.
- Repeal The Corporate Alternative Minimum Tax (AMT). One major drawback of the Corporate AMT is its effect of penalizing companies that invest in capital equipment. A growing economy depends on robust capital investment. Unfortunately, corporations that are subject to the Corporate AMT are unfairly hit by strict depreciation rules. Due to this chilling effect on capital investment, the corporate AMT must be fully repealed. Investment will no longer be penalized, spurring labor productivity, an increase in American incomes, and greater economic prosperity.
Mitt Romney's Fiscal Policy Proposals
As he announced in his fiscal plan last November, Romney is committed to reducing federal spending to 20 percent of GDP by 2016 while reversing President Obama's dangerous cuts to national defense. Achieving this goal will require spending cuts of approximately $500 billion. The result will be to return government's share of what this nation produces to the level pre-dating the financial crisis and the rapid escalation of spending under President Obama. Specifically, the plan:
- Cuts Programs That America Cannot Afford. The first step in this direction is to repeal Obamacare.
- Sends To The States Programs That They Can Implement Better. For instance, block-grant Medicaid.
- Improves Efficiency And Effectiveness. What the government needs to do, it should do more effectively.
Looking ahead to yawning future deficits from the unfunded promises of Social Security and Medicare that threaten the nation's solvency and foreshadow growth-destroying tax hikes, Romney proposes to shore up these important programs without impacting seniors who are at or near retirement, and without tax hikes.
- Social Security. For younger generations, gradually raise the retirement age and index the growth in benefits for higher-income retirees to inflation instead of wages.
- Medicare. For younger generations, create a premium support system that gives each senior the freedom to choose among competing private plans and traditional fee-for-service Medicare.
If America goes down the road proposed by the President, it will eventually face crippling tax increases that destroy jobs and stifle economic growth. Only Governor Romney has proposed a comprehensive plan to Restore America's Promise with More Jobs, Less Debt, and Smaller Government.