The Terrible Romney Tax Policy Idea The Campaign's Been Ignoring

A blog about business and economics.
Oct. 12 2012 12:42 PM

The Terrible Romney Tax Policy Idea The Campaign's Been Ignoring

Mitt Romney
Mitt Romney

Photograph by Jim Watson/AFP/Getty Images.

Josh Marshall wisely notes that the tax plan described on Mitt Romney's campaign website bears relatively little resemblance to the revenue-neutral reform he's been talking about lately. Which reminds me that alongside his many vague claims, Romney's made at least one specific commitment to a really terrible idea that I've helpfully highlighted:


Now recall briefly that people sometimes make a blunder about how marginal tax rates work and think that if you go into a higher tax bracket you might actually end up with a lower after-tax income than you previously had. Thankfully, the designers of the progressive income tax weren't dumb and that doesn't happen. But with Romney's reforms, it might.


Say you've got an AGI of $195,000 of which $175,000 is your salary and $20,000 is interest income. That investment income would, under Romney's plan, be untaxed. But now your boss tells you that if you and your team manage to buckle down and get the project done by Thanksgiving there's a $6,000 bonus in it for you.

At first you're jazzed up, yeah we can do that!

But then you realize that not only will you pay $1,680 in federal income taxes (28 percent) on your bonus, you'll also have to pay $5,600 in federal income taxes (again 28 percent) on your interest income since you'll now be above the $200,000 AGI threshold. In other words, $6000 in additional income will hit you with a $7,280 tax bill. Now suddenly you're urging your team to slow things down and make sure by all means don't get it done by Thanksgiving.

Bad idea. I'm sure you could tweak things to eliminate this feature of the plan. But if you want to eliminate the marginal tax rates of over 100% while preserving the total elimination of taxes on investment income for middle class households, you're going to have to make the proposal even friendlier to the interests of high-income tax payers. And that gets you back into an even more severe form of Romney's Trilemma. Either that extra tax break has to be made up with tax hikes on the middle class, or it has to lead to higher deficits.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.



The Self-Made Man

The story of America’s most pliable, pernicious, irrepressible myth.

The GOP Senate Candidate in Iowa Doesn’t Want Voters to Know Just How Conservative She Really Is

Does Your Child Have “Sluggish Cognitive Tempo”? Or Is That Just a Disorder Made Up to Scare You?

Naomi Klein Is Wrong

Multinational corporations are doing more than governments to halt climate change.

The Strange History of Wives Gazing at Their Husbands in Political Ads


See Me

Transparent is the fall’s only great new show.


Lena Dunham, the Book

More shtick than honesty in Not That Kind of Girl.

Rehtaeh Parsons Was the Most Famous Victim in Canada. Now, Journalists Can’t Even Say Her Name.

Parents, Get Your Teenage Daughters the IUD

The XX Factor
Sept. 30 2014 12:34 PM Parents, Get Your Teenage Daughters the IUD
Sept. 30 2014 12:04 PM John Hodgman on Why He Wore a Blue Dress to Impersonate Ayn Rand
  News & Politics
Sept. 30 2014 2:36 PM This Court Erred The Supreme Court has almost always sided with the wealthy, the privileged, and the powerful.
Building a Better Workplace
Sept. 30 2014 1:16 PM You Deserve a Pre-cation The smartest job perk you’ve never heard of.
Sept. 30 2014 1:48 PM Thrashed Florida State’s new president is underqualified and mistrusted. But here’s how he can turn it around.
  Double X
The XX Factor
Sept. 30 2014 12:34 PM Parents, Get Your Teenage Daughters the IUD
  Slate Plus
Slate Picks
Sept. 30 2014 11:42 AM Listen to Our September Music Roundup Hot tracks from a cooler month, exclusively for Slate Plus members.
Brow Beat
Sept. 30 2014 12:42 PM How to Save Broken Mayonnaise
Future Tense
Sept. 30 2014 2:38 PM Scientists Use Electrical Impulses to Help Paralyzed Rats Walk Again
  Health & Science
Bad Astronomy
Sept. 30 2014 7:30 AM What Lurks Beneath the Methane Lakes of Titan?
Sports Nut
Sept. 28 2014 8:30 PM NFL Players Die Young. Or Maybe They Live Long Lives. Why it’s so hard to pin down the effects of football on players’ lives.