Report: Romney Tax Proposals Definitively Better for Economic Growth Than Obama's

Posted: Nov 03, 2012 5:07 PM
A report out yesterday from the non-partisan Tax Foundation analyzes Barack Obama and Mitt Romney's tax plans side-by-side and comes to the conclusion that a President Romney would be much better for economic growth than a second Obama term - and indeed, if President Obama's policy proposals were instituted as law, economic growth would actually be worse than current law projections.

Source: Tax Foundation

In contrast to the Tax Policy Center, the Tax Foundation's model doesn't take Romney's revenue-neutrality pledge as definitive. Thus, the report finds that the Romney plan would increase the deficit by significantly lowering federal tax revenues. Conversely, President Obama's plan would result in a significant tax increase - and higher government revenues - under both static and dynamic calculations.

The greatest harm done by President Obama's tax proposals is not due to his desire to let the Bush income tax cuts lapse on high-income earners but by the proposed hike in the capital gains and dividends tax rates. Compared to his capital gains tax plans, President Obama's hike on high-income earners' marginal rates is insignificant.

On Romney's side, significant positive economic growth effects were found for his proposals on corporate taxes, capital gains and dividends taxes, and personal income taxes. Easily the biggest effect comes from his corporate income tax cut. This is notable especially when compared with President Obama's corporate tax proposals, of which the Tax Foundation said "the lack of specificity made modeling difficult."

What is interesting is the difference in deficit effects from the two plans. Republicans have typically claimed the mantle of deficit warriors, yet the Tax Foundation's conclusions are that, even when estimating dynamic effects of tax proposals, President Obama would be better on the deficit than a potential President Romney. This is significant as, according to the Congressional Budget Office, there are significant economic growth effects of increased government debt.

Increased government borrowing generally draws money away from (crowds out) private investment in productive capital, leading to a smaller stock of capital and lower output in the long run than would otherwise be the case. Deficits generally have that effect on private investment because the portion of people’s savings used to buy government securities is not available to finance private investment.

It could certainly be the case that the tax proposals by Romney are good enough on growth to overwhelm the effect of additional government debt. The Tax Foundation's reports are definitely illuminating guides to the two candidates' - and indeed, the two parties' - tax policies and priorities.