Obama's $5 Trillion Dollar Tax Cut Fiction

Perhaps the most heavily used attack against Republican presidential candidates over the years has been: "tax cuts for the rich." In addition, many of the tax cuts they favor, and especially those including large reductions at high income levels, are mocked as a form of very wasteful spending-as if the money naturally belongs to Washington, not to its earners.

Because this assault is politically effective, if disingenuous, it's occurred yet again in 2012. Thus the repeated charge from President Obama, in the October 3 debate, that Mitt Romney advocates a "$5 trillion tax cut." Fortunately, Art Laffer's Engage America video sets the record straight.

To his credit, Romney strongly denied this mantra, and he's right. As the nonpartisan economist and economic commentator Robert Samuelson writes, the $5 trillion tax cut figure is "a fiction" to which most in the media have "given a pass." Obama's and his fellow Democrats' contention wildly ignores two major points.

First, the other half of the Romney tax plan would reduce deductions, credits, and other tax break, which, depending on how one looks at it, could be considered a tax increase.

Second, there is the demonstrated fact that lower taxes, by letting people and businesses keep more of their earnings and thus strengthening incentives to work and invest, tend to expand the economy, thereby stimulating much new tax revenue. Both the major income tax cuts in the early 1980s and the early 1960s were followed by higher income tax revenues than before. And, again thanks to economic growth for which those tax cuts deserve significant credit, payroll and corporate tax receipts grew, too.

Furthermore, the $5 trillion figure includes the elimination of new taxes that would be imposed starting next year by the president's Affordable Care Act, or Obamacare, whose repeal Romney has promised to work for. Since we aren't paying those taxes yet, it's wrong to include them.

It is true that Romney proposes large tax cuts. His plan would reduce income tax rates by 20 percent for all brackets and would cut other taxes as well. It would, for example, actually end the capital gains tax on dividends for lower- and middle-income people. It would also cut America's notoriously high corporate income tax from 35 to 25 percent.

The Democrats' purpose in sticking the Romney tax plan with an enormous price tag is not only to suggest that it's more of the same old alleged Republican "welfare" for the rich, but also to claim it would balloon the deficit even further. Yet the bipartisan Simpson-Bowles Commission, which proposed a deficit-reduction plan two years ago, recommended the same basic tax principles: lower rates, fewer loopholes.

It's because we do have an enormous deficit problem that Romney intends for his plan to be revenue-neutral, meaning no net loss in tax dollars to the government. His proposal is not an overall tax reduction, such as President Reagan got enacted in 1981. It's more accurately called a tax reform, designed to cost the government nothing while boosting the economy by making our tax structure more favorable to growth. In addition, Romney has vowed not to reduce the total share of taxes that is paid by the wealthy or to enact a net tax increase on the middle class.

A study just released by the Tax Foundation concludes that economic growth resulting from Romney's tax cuts would restore 60 percent of the lost revenue, leaving only 40 percent of that revenue to be made up by eliminating and reducing tax breaks. Of course, those numbers can't be proved in advance. But they illustrate how thoughtless and misleading Obama's "$5 trillion tax cut" talking point really is.