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The Daily Reckoning

Newt Gingrich's 'Romney tax' not a bad idea

Newt Gingrich has suggested a flat tax rate of 15 percent, which he now proposes to call the “Romney Tax.” But Newt Gingrich's proposal won't happen because a complex tax code provides cover in which to hide special favors and privileges for the rich.

By Guest blogger / January 20, 2012

Mitt Romney and Newt Gingrich shake hands at the end of the Republican presidential candidate debate at the North Charleston Coliseum in Charleston, S.C., Thursday, Jan. 19, 2012. Bonner argues that Gingrich's 15 percent flat tax proposal (dubbed the "Romney tax") would be a welcome change from the nation's overly complex tax code.

David Goldman/AP

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Dow up 96 yesterday. Gold up $4. Oil above $100. Nothing special to report, in other words.

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Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning (dailyreckoning.com).

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Mitt Romney has revealed his effective tax rate. “About 15%,” he says.

That seems like more than enough to us. But it’s not enough to satisfy the zombies. Romney has made a lot of money. They want more of it.

It turns out that 15% is lower than average. The AP reports:

At 15 percent, Romney’s federal income tax rate would still be higher than the rate paid by many Americans.

On average, households making between $50,000 and $75,000 will pay a federal income tax rate of 5.7 percent this year, according to projections by the Tax Policy Center, a Washington think tank.

However, when Social Security and other taxes are included, that same household would pay an average federal tax rate of 16.6 percent.

Overall, the average American household will pay 9.3 percent in federal income taxes — and 19.7 percent in all federal taxes.

Romney’s wealth — he is worth between $190 million and $250 million — puts him among the richest Americans. But if most of his income is from investments, it could help him to significantly lower his federal tax bill compared to people who make money in other ways.

While the top federal tax rate for investment income — qualified dividends and long-term capital gains — is 15 percent, the top tax rate for wages is 35 percent on taxable income above $388,350. Wages are also subject to Social Security and Medicare payroll taxes, while investment earnings are not.

Newt Gingrich has suggested a flat tax rate of 15%, which he now proposes to call the “Romney Tax.”

But the zombies not only want a higher rate (so they can squeeze the producers a bit harder) they also don’t want a flat tax. They prefer a confusing, complex, and ever-changing tax code, with 10,000 rules and 20,000 exceptions. Why? Three reasons:

First, complexity provides rich cover in which to hide special favors and privileges.

Second, the more special favors available, the more campaign contributions, donations, job offers and speaking fees Congress can count on.

Third, and don’t forget the lawyers and accountants — the corrupt insiders — who make money by helping lay the mines…and then helping taxpayers get through the minefields without blowing up. Sure, you could replace the government’s revenue with a much simpler tax system…but you’d inconvenience the zombies.

In short, the tax system is completely corrupt. It is a drag on the whole economy…but it serves the zombies well.

Regards,

Bill Bonner,
 for The Daily Reckoning

The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on dailyreckoning.com.

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