Tax issue is sinking Mitt Romney

Mitt Romney has had a bad week, and his “maybe” answer regarding his willingness to release tax returns for prior years like his father did many years ago will likely go down as one of those iconic campaign moments that help define a candidate.

It was obvious to me for the past month that this would be a real issue. The tax code has been manipulated for years by lobbyists, and wealthy financiers like Romney get huge breaks, including the indefensible carried interest.

Romney is particularly vulnerable on this issue as he’s proposing to lower tax rates on the wealthy even more. Now he has compounded the problem with his muddled answers.

The ad above was created quickly after his disastrous debate performance. Right now the polls suggest he’ll lose the South Carolina primary to Newt Gingrich.

Mitt Romney’s tax return problem

Ann Romney (L) introduces her husband, Republican presidential candidate and former Massachusetts Governor Mitt Romney, at a campaign stop in Bethlehem, New Hampshire December 22, 2011. REUTERS/Brian Snyder (UNITED STATES – Tags: POLITICS)

The folks at BusinessInsider.com point out that Mitt Romney’s biggest problem might be his tax returns. So far he has refused to release his tax returns and he reiterated that position in a recent interview with Chuck Todd.

Romney’s campaign team has clearly decided that the political risk of releasing the returns outweighs the potential problems of not doing so. No one knows for sure what the documents would say, but by the candidate’s own admission, the bulk of Romney’s retirement income from Bain has been from capital gains, which are subject to 15% tax rate.

That means that for the past 10 years, Romney has likely been paying a lower tax rate than most middle class voters. If this is the case, that information could be devastating to Romney’s presidential bid.

The issue of tax fairness is huge right now, and Romney might become the poster-child for that problem. Warren Buffet has famously come out strong on this, saying that it’s not fair that he pays a lower effective tax rate on his income than his secretary.

I think this is a huge problem for Romney. If he makes it to the general election, the Obama campaign and the Democratic PACs are going to hammer him on not releasing his tax returns. If that issue catches fire and he ultimately releases them, then the story is huge.

But it’s huge regardless of when he releases them. He might want to just get it out of the way and have a response ready.

Either way this one can be problematic.

Elizabeth Warren takes on the “class warfare” issue

Elizabeth Warren is a natural because she can articulate her philosophy in a way that connects with regular voters. Here she takes on the “class warfare” charge.

Scott Brown must be getting pretty nervous . . .

Trigger happy

House Minority Leader Nancy Pelosi (D-CA) leaves a House Democratic Caucus meeting on Capitol Hill in Washington on July 29, 2011. UPI/Kevin Dietsch

I’m watching the coverage of the debt deal, and it’s difficult listening to people like Chris Matthews who manage to sound clueless as they let their emotions overcome their ability to think.

Of course this is a short term win for the Tea Party and the Republicans. They had leverage, as enough of them were crazy enough and dumb enough to let the stalemate continue through August 2nd, risking economic catastrophe.

Also, President Obama took the calculated risk of going for a grand bargain. Those efforts failed, and that made it more difficult in the end game. That said, he earned long-term political points, as the public was educated about the need for a balanced approach and polls show they support that in overwhelming numbers.

Now we move to the new gang of 12 and the next phase of the debt deal. Ezra Klein makes a great point, arguing that Democrats will likely prefer the trigger as opposed to a deal if the GOP won’t budge on revenues.

Start from the premise that Republicans will refuse any deal that includes significant new revenue and Democrats will realize that that’s just fine from their perspective, as Republicans can either cut a deal with them in December 2012 or all of the Bush tax cuts can expire. Now take a good, hard look at the trigger.

The Joint Committee is charged with finding $1.5 trillion in savings over 10 years. The trigger would only cut $1.2 trillion over 10 years. The Joint Committee is likely to cut Social Security, Medicaid and a host of programs Democrats aren’t going to want to touch if taxes aren’t part of the deal. The trigger exempts Social Security and Medicaid, and $1 out of every $2 in cuts comes from the Pentagon. The Joint Committee is likely to cut a deal without revenue, and Democrats will have to explain to their base why they permitted, say, Medicare cuts while letting the GOP reject tax increases. The trigger lets Democrats blame Republicans for protecting the wealthy in the 2012 election.

The trigger would also result in massive defense cuts.

So, if the Democrats prefer a trigger if a deal can’t include revenues, and many Republicans will want to avoid defense cuts, this gives the Democrats leverage!

These details are important, and commentators like Matthews should wait to understand these dynamics before whining about the deal.

The GOP’s Eric Cantor problem

House Majority Leader Eric Cantor (R-VA) speaks at the Faith & Freedom Conference and Strategy Briefing in Washington, June 3, 2011. REUTERS/Molly Riley (UNITED STATES – Tags: POLITICS)

The GOP discipline has completely broken down over the past week in the debt ceiling negotiations. All year they’ve been playing a game of Russian Roulette with the economy, trying to use a potential default to force massive spending cuts. In many ways the strategy worked well, as President Obama and the Democrats put just about everything on the table.

But, as usual, the ideologues are overplaying their hand, so much so that Mitch McConnell buckled under the pressure of the business community and basically said he’d let the president raise the debt ceiling without any cuts.

The guy at the center of all this is Eric Cantor, whose either too stupid or too ambitious to take yes for an answer. He can get massive cuts if he just includes some revenues in a deal, but instead he’s pushing the talks to the brink of disaster. Last night he also tried to imply that the President lost his cool in the last meeting, though all other accounts tell a different story.

Meanwhile, the polls are starting to shift in Obama’s favor with regard to the debt and the economy – at least when compared to congressional Republicans. That’s what happens when smarmy guys like Cantor become the face of the GOP.

Dana Milbank nailed it yesterday, even before Cantor’s latest performance last night in the negotiations where he again refused to budge.

He draws out the vowels in a style that is part southern, part smarty-pants. Had young Cantor spoken like this at his prep school in Richmond, the bigger boys may well have wiped that sneer off his face. Yet even then, Cantor was accustomed to having things his way. According to Cantor’s hometown Richmond Times-Dispatch, the quotation he chose to accompany his yearbook photo was “I want what I want when I want it.”

What Cantor wants now is power — and he is prepared to risk the full faith and credit of the United States to get it. In a primacy struggle with House Speaker John Boehner, he has done a deft job of aligning himself with Tea Party House members in opposition to any meaningful deal to resolve the debt. If the U.S. government defaults, it will have much to do with Cantor.

His antics from last night are being branded as childish, and the Democrats smell blood and are now taking direct aim at Cantor. Harry Reid is more than happy to negotiate now with Mitch McConnell who is desperate to avoid the potential catastrophe that he and other Republicans created.

They clearly thought Barack Obama would fold, but they were mistaken. Obama has called their bluff, and they look like panicked fools at the poker table.

Digging in their heels . . .

U.S. President Barack Obama speaks during a news conference in the East Room of the White House in Washington, June 29, 2011. REUTERS/Kevin Lamarque (UNITED STATES – Tags: POLITICS)

It looks like we’re heading for an ugly end game for the debt ceiling confrontation. Ezra Klein explains:

The best advice I’ve gotten for assessing the debt-ceiling negotiations was to “watch for the day when the White House goes public.” As long as the Obama administration was refusing to attack Republicans publicly, my source said, they believed they could cut a deal. And that held true. They were quiet when the negotiations were going on. They were restrained after Eric Cantor and Jon Kyl walked out last week. Press Secretary Jay Carney simply said, “We are confident that we can continue to seek common ground and that we will achieve a balanced approach to deficit reduction.” But today they went public. The negotiations have failed.

“The primary goal of President Obama’s presser, which just wrapped up, was obvious,” writes Greg Sargent. “He was clearly out to pick a major public fight with Republicans over tax cuts for the rich.” That’s exactly right. But he didn’t want this fight. He wanted a deal. And he wasn’t able to get one that the White House considered even minimally acceptable. After putting more than $2 trillion of spending cuts on the table, they weren’t even able to get $400 billion — about a sixth of the total — in tax increases.

Klein goes on to explain that things will likely get ugly. Both sides are digging in their heals, and only a crisis or market meltdown will get them to move. Perhaps something else will change the dynamic, like the proposal coming from Kent Conrad and the Senate Democrats, but that seems unlikely.

As Klein explained, Obama has been quiet because he was hoping for a deal. Now that the Republicans want a fight, they are going to get one. Nobody likes taxes, but the notion that we can’t have any new revenues, including closing corporate tax breaks, when we’re facing a $15 trillion debt is totally absurd. The polls are in Obama’s favor when it comes to increasing taxes on the wealthy.

That said, the GOP is currently run by the extremists in the Tea Party who won’t compromise on anything. It’s probably going to get ugly . . .

The death of supply-side economics

One of the original supply-siders, Bruce Bartlett, explains in a brilliant op-ed why the ideas that worked so well in the early 1980′s are irrelevant today. Bartlett is promoting a new book, The New American Economy.

I continue to believe that what the supply-siders did was good for the economy, good for the country and good for the advancement of economic science. The best economists in the country were pretty clueless about our economic problems during the Carter years. It was widely asserted that the money supply had no meaningful effect on inflation, that marginal tax rates had no incentive effects, and that it would take decades or another Great Depression to break the back of inflation.

As all economists now know, these ideas were wrong. All economists today accept the importance of the money supply–perhaps too much; during the recent crisis many asserted that fiscal stimulus was unnecessary because an increase in the money supply was the only thing necessary to restore growth. (How this would have been accomplished when interest rates were close to zero was never explained.) All economists now accept the importance of marginal tax rates to economic decisionmaking, and organizations like the National Bureau of Economic Research publish vast numbers of papers on this topic.

During the George W. Bush years, however, I think SSE became distorted into something that is, frankly, nuts–the ideas that there is no economic problem that cannot be cured with more and bigger tax cuts, that all tax cuts are equally beneficial, and that all tax cuts raise revenue.

These incorrect ideas led to the enactment of many tax cuts that had no meaningful effect on economic performance. Many were just give-aways to favored Republican constituencies, little different, substantively, from government spending. What, after all, is the difference between a direct spending program and a refundable tax credit? Nothing, really, except that Republicans oppose the first because it represents Big Government while they support the latter because it is a “tax cut.”

Bartlett exposes the caricature that has taken over conservative economic thinking, the slavish devotion to dogma that makes it impossible to consider the circumstances of our new reality. Think about it. Talk to a conservative about economic policy, and the answer, regardless of the circumstances, is usually the same – spending bad, tax cuts good. I can teach a three-year-old to repeat that.

Bartlett goes on to explain why massive spending was necessary with the economic collapse we faced last year, and the obscenely stupid response of many conservatives who suggested addressing the problem with more tax cuts.

Bartlett was an adviser to Jack Kemp and helped write the Reagan tax cuts. This is a must-read for anyone who wants to understand the history of supply-side economics and why one of its chief architects is arguing that it doesn’t apply today.

Peter Schiff vs. Art Laffer and all the other cheerleaders

Peter Schiff has been calling the mortgage crisis and the recession for years. This video shows Schiff battling the likes of Art Laffer and Ben Stein, who were arguing last year that the US economy was in great shape and that there was no problem with inflated home values or the sub-prime mess.

Laffer is the same guy saying the sky will fall if Obama institutes his tax plan. Why should we listen to this guy?

For years we were told that tax cuts would solve everything. Of course, we were just living it up on cheap money, and now the bill is coming due. Watch the video, and ask yourself who you should be listening to now.

Hat tip: Andrew Sullivan

CNN compares the Obama and McCain tax plans

If you’re making under $250,000 per year, both candidates are proposing tax cuts. For the lower brackets, the cuts are bigger under Obama’s plan. McCain offers higher cuts for taxpayers in the higher brackets.

Meg Whitman falls flat

I was expecting a little more from Meg Whitman’s speech. As the former CEO of Ebay, she might a bright future ahead of her in politics. The pundits on MSNBC were speculating that Arnold supports the idea of having Whitman be the next governor of California.

Her delivery was fine, and she was able to convey the Republican message of individualism and tax cuts, but the crowd wasn’t into it. She got some good cheers, but overall the speech was dull.

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