Romney and his economic heavyweights oppose Obama’s plan to “raise marginal tax rates on upper-income Americans.” Obama has proposed returning to the pre-Bush rate structure for families making more than $250,000, which would mean increasing the top marginal rate to 39.6 percent from the current 35 percent. Many in the public have misunderstood that to mean that families making more than $250,000 of taxable income will have their taxes increased by 4.6 percent (the difference between 39.6 percent and 35 percent).
That’s not the case. The higher rates only apply to dollars above $250,000. For example, under Obama’s plan, a family with $300,000 of taxable income would see a tax increase of exactly $1,500 – hardly a burdensome tax.
Romney’s advisers argue for revenue-neutral tax reform that would decrease marginal rates and pay for this reduction by broadening the tax base and eliminating deductions and exemptions in the tax code. Romney claimed in the first debate that he will reduce the tax rates for all taxpayers, but that also (contrary to his stated economic plan) he “will not reduce the taxes paid by high-income Americans.” But he will not specify how he could do this. Nor will the Romney campaign identify which tax breaks they’ll eliminate and how those measures will be enough to compensate for their proposed tax cuts.
His advisers argue that lower marginal rates will increase economic growth, but this assertion runs counter to evidence that growth has been higher when marginal rates are higher. For example, in the 1950s, America had high growth and marginal rates as high as 90 percent. In the 1990s, after the top marginal rate was raised from 35 percent to 39.6 percent, the economy experienced the greatest period of growth since the Great Depression. On the other hand, economic growth was not robust after the Bush tax cuts in the early 2000s.
It is clear that in addressing the debt and deficit, Washington needs to raise revenue. In an op-ed last week in The Wall Street Journal, 80 CEOs of large companies agreed with this position. They explicitly stated, that in decreasing the deficit Washington needs to “raise revenues” as well as cut spending.
