October 24, 2011 Memorandum To Interested Parties From: James Kvaal Policy Director, Obama for America

REPUBLICAN PLANS SHIFT TAXES FROM WEALTHIEST HOUSEHOLDS ONTO THE MIDDLE CLASS For years before the economic crisis, the economy grew while middle class families struggled
with stagnant wages, sluggish job growth, and greater economic insecurity. While those at the top did well, middle class families worked harder and harder and kept falling behind. Getting Americans back to work is job one, but our work doesnt end there. We have to create more opportunities for families to work hard and get ahead. This will require investing in education, innovation, and infrastructurethe types of investments that create jobs today and restore middle class security. Its time to focus on the basic values that have always been at the heart of American prosperity: making sure that hard work pays, responsibility is rewarded and everyone from Main Street to Wall Street does their fair share. We cannot restore shared prosperity and middle class security by returning to the failed strategies of the past that say that everything will be ne if we just give another tax cut, special break or additional benet to those at the top. Those strategies have failed and the overwhelming majority of Americans have been coping with the negative consequences of those policies for a decade. Tomorrow, Governor Rick Perry will unveil his economic plan, featuring a at tax plan that radically restructures the tax system and shifts a greater tax burden onto the middle class. The Perry tax plan comes on the heels of Governor Mitt Romneys economic plan, which doubles down on the failed strategies of the past with large tax cuts for corporations and wealthy Americans while delivering little or nothing to most middle class families. Both the Romney and Perry economic plans embrace a far-right vision for our tax code. They share elements with plans o ered by congressional Republicans, which independent economists believe would fail to accelerate job creation now. Both plans would cut taxes on wealth and investment income, shifting the tax burden onto work and wages. Both plans are likely to be costly, driving up the decit at a time of historic scal challenges. And under both plans, the most fortunate Americans would pay less while the middle class would pay a higher share.

The Romney Tax Plan

In the past, Romney criticized at tax proposalscalling one a tax cut for fat catsbut more recently has said, I love a at tax. 1 While the economic plan he unveiled almost two months ago did not propose a at tax, it is also likely to shift the tax burden onto the middle class. The Romney plan included well over $1 trillion in new tax cuts, over and above the cost of continuing expiring tax breaks.2 Romney proposed three tax cuts, in addition to extending current policies. The largest tax cut would go to corporations. Romney promised to immediately reduce the corporate tax rate from 35 percent to 25 percent, while exploring further reductions paired with steps to remove deductions and credits. The independent Tax Policy Center has estimated that this policy would cost over $100 billion a year. 3 President Obama also believes in cutting corporate tax rates to make American businesses more competitive. But while Romneys approach would add close to a trillion dollars to the debt, the Presidents plan would end deductions and close loopholes to ensure that corporations continue to contribute their fair share of taxes.4 Romneys other two tax cuts are focused on wealth and income earned from wealth, rather than on the type of income that middle class families generateincome from actual work. He would eliminate the estate tax completely, eliminating taxes on inherited wealth no matter how large at a cost of over $15 billion a year beyond the cost of continuing current policies.5 And he would eliminate income taxes on capital gains, dividends, and interest for all taxpayers with adjusted gross incomes below $200,000 a year. Although independent analysis of this plan does not yet exist, data from the Tax Policy Center suggests that its costs would approach $25 billion a year. 6 Because most middle-class families generate their income from working, they will see little or no benet from these tax cuts. While more sophisticated analyses will no doubt follow, existing estimates from the Tax Policy Center reveal that:

Nearly half49 percentof the benet of corporate tax cuts in 2011 would go to the 0.3 percent of American households earning over $1 million a year.7 Only 12 percent would go to the 82 percent of households earning less than $100,000 a year.

Eliminating the estate tax would be even more regressive. Almost 67 percent of the tax cuts in 2011 would go to families earning more than $1 million a year, while families earning less than $100,000 a year would get next to nothing.8

The tax break on unearned income is limited to families with income below $200,000, but about three-quarters of these families already pay no investment taxes. A typical middle-class family with $40,000 to $50,000 in income would get a tax cut worth only $54 in 2011. 9 As Newt Gingrich observed, the Romney plan would limit capital gains tax cuts only to people who dont get capital gains.10 Romney also praised Paul Ryans budget plan, which included large tax cuts for the most fortunate families.11 And he opposes President Obamas proposal to extend and expand payroll tax relief for American workers, calling it temporary little Band-Aids at a recent presidential debate.12

The Perry Flat Tax Plan

Tomorrow, Governor Rick Perry will unveil an economic plan with a radical restructuring of the tax codea at taxat its center.13 While the details of Perrys plan will be announced tomorrow, at tax proposals reduce the contributions of the most fortunate households, shifting the burden onto the middle class. Under a at tax, all Americans would pay the same tax rate, abandoning the progressive principle that the most fortunate Americans can a ord to contribute more. Flat tax plans typically eliminate a host of tax deductions and exemptions intended to help families a ord expenses that are essential to middle class security like health insurance, home mortgages, charitable contributions, and child care. Many at tax proposals also eliminate all taxation on capital gains and other investment income so that the wealthiest, who generate much of their income from investments, rather than work, see huge gains. As a result, the Perry plan can be expected to share the same basic characteristics of the Romney plan, including large tax breaks for wealthy and high-income families and a higher share of the tax burden for the middle class.

Richard A. Oppel Jr. and Ashley Parker, Romney, Once a Critic, Hedges on Flat-Tax Plans, New York Times, October 23, 2011, available at: http://www.nytimes.com/2011/10/24/us/politics/mitt-romney-changes-his-tone-on-at-tax-plans.html?_r=1.
2

Romney for President, Believe in America: Mitt Romneys Plan for Jobs and Economic Growth, September 6, 2011, available at: http://mittromney.com/blogs/mitts-view/2011/09/believe-america-mitt-romneys-plan-jobs-and-economic-growth.
3

Tax Policy Center, Reduce Corporate Income Tax Rate and Repeal Various Individual Income Tax and Payroll Tax Provisions, Table T11-0088, April 7, 2011, available at: http://www.taxpolicycenter.org/numbers/displayatab.cfm?Docid=2969&DocTypeID=5.
4

O ce of Management and Budget, Fiscal Year 2012 Budget of the U.S. Government, available at: http://www.whitehouse.gov/sites/default/les/omb/budget/fy2012/assets/budget.pdf.
5

Congressional Budget O ce, Reducing the Decit: Spending and Revenue Options, March 2011, available at: http://www.cbo.gov/ftpdocs/120xx/doc12085/03-10-ReducingTheDecit.pdf.
6

Tax Policy Center, Exempt All Capital Income from Taxation, Table T11-0190, June 16, 2011, available at: http://www.taxpolicycenter.org/numbers/displayatab.cfm?DocID=3071. The table classies households by cash income, which is typically higher than adjusted gross income, and therefore understates the tax cuts cost and benet to high-income taxpayers.
7

Tax Policy Center, Share of Taxes Paid by Filing Status and Demographic, Table T11-0357, September 19, 2011, available at: http://www.taxpolicycenter.org/numbers/displayatab.cfm?DocID=3201; Tax Policy Center, Distribution of Cash Income and Federal Taxes under Current Law, Table T11-0090, May 19, 2011, available at: http://www.taxpolicycenter.org/numbers/displayatab.cfm?Docid=2971&DocTypeID=7.
8

Tax Policy Center, Share of Taxes Paid by Filing Status and Demographic, Table T11-0357, September 19, 2011, available at: http://www.taxpolicycenter.org/numbers/displayatab.cfm?DocID=3201.
9

Tax Policy Center, Share of Taxes Paid by Filing Status and Demographic, Table T11-0357, September 19, 2011, available at: http://www.taxpolicycenter.org/numbers/displayatab.cfm?DocID=3201.
10

Bloomberg, Romney, Perry, Cain Square O on Economy in Debate, October 11, 2011, available at: http://www.bloomberg.com/news/print/2011-10-12/romney-perry-cain-square-o -on-economy-in-debate-transcript-.html.

11

Ben Smith, Romney Praises Ryan Tone, April 5, 2011, available at: http://www.politico.com/blogs/bensmith/0411/Romney_praises_Ryan_tone.html; Chuck Marr, Center on Budget and Policy Priorities, Ryans Path to Prosperity Is Just for the Wealthy, April 6, 2011, available at http://www.cbpp.org/cms/index.cfm?fa=view&id=3461.
12

Bloomberg, Romney, Perry, Cain Square O on Economy in Debate, October 11, 2011, available at: http://www.bloomberg.com/news/print/2011-10-12/romney-perry-cain-square-o -on-economy-in-debate-transcript-.html.
13

Rick Perry, Remarks at the Western Republican Leadership Conference, October 19, 2011, available at: http://www.rickperry.org/news/text-of-gov-rick-perry-remarks-at-the-western-republican-leadership-conference/.