2012 Tuesday: The Romney tax return distraction

Mitt Romney’s tax returns are slowly leaking out, with full details to come later today. (UPDATE: The 2010 returns and 2011 estimates are available on Romney’s campaign website.) And as fully expected, progressives are in high sanctimony about his effective tax rate of 14 percent — as if they would have thought he’d fulfilled his patriotic duty by paying  25 percent, or 35 percent, or 50 percent, and still had well over $10 million they hadn’t gotten their claws on.

Lefties who always harken back to the Clinton-Gingrich-Lott years as a golden era of satisfactory, budget-balancing tax rates seem oblivious to the fact that the difference between what Romney paid under the current rates and what he would have paid under the rates that prevailed then is roughly $900,000. No, you’re not missing a decimal point: At a top income tax rate of 39.6 percent and a capital gains rate of 20 percent, Romney would have paid something like $900,000 more on his $21.7 million in 2010 income (capital gains of $20.8 million and other income of about $0.9 million).

If you actually believe an extra $900,000 in taxes paid would have spared Romney this political headache, I’m surprised you can actually read this blog post.

But that’s not all. Let’s say Romney’s capital gains not only had been taxed at the same top rate as regular income in 2010 (35 percent) but that he hadn’t been able to reduce his taxable income through charitable donations. In that case, Romney would have had something like $14.1 million left over after federal taxes (and a lot of charities would have failed to help a lot of people, but that’s another argument for another day). In reality, Romney donated $2.98 million to charity and paid $3 million in federal taxes, leaving him with $15.7 million.

Again, it’s foolish to believe the wealth-envy industry would have been satisfied with such a difference.

We could run any number of scenarios producing any number of hypothetical results (none of which would be truly accurate, because they all wrongly assume a differently structured tax code wouldn’t have affected Romney’s behavior). At the end of the day, it’s not really about that.

It’s not really about balancing the budget — not when the president and congressional Democrats make no secret of their desire to increase spending at least as fast as revenues might grow. Witness President Obama’s 2012 budget proposal, which assumed taxes would go up as he desired starting in 2013 — and yet, for the rest of his presidency, would not have cut the budget deficit even to 3 percent of gross domestic product. His budget deficits after raising taxes would have remained higher as a share of GDP than George W. Bush’s average budget deficit from the time he cut taxes until the housing bubble burst.

It is, however, about whose vision is best for the economy: Obama’s vision of a government that consumes a larger share of Americans’ production than this country has ever seen on a sustained basis, or the alternative of a government that returns to a rational size based on our historical experience and economic reality.

Because conservatives understand and acknowledge that tax rates affect individuals’ and businesses’ incentives and thus their behavior — the left understands this, but only acknowledges it when arguing for policies such as “green” taxes — we often get bogged down talking about the tax code. (Yes, my hand is raised here, too.)

But as Milton Friedman taught us, what really matters for the economy is the size of government spending. What the citizens don’t pay in taxes now, they pay in future taxes (debt) or price inflation. (Credit where credit’s due: Ron Paul is the only presidential candidate who consistently makes this case.)

The left is not making an issue of Mitt Romney’s tax rates out of an interest in closing the budget deficit. As Reagan learned to his chagrin, agreeing to raise taxes in exchange for promises of spending cuts only leads to higher taxes and higher spending. It would happen again if Obama-Pelosi-Reid got their way and took a larger chunk from “the rich,” as their unserious proposals for “cutting” spending demonstrate.

It is purely the politics of envy and redistribution: See those rich people like Mitt Romney? If you elect us, we’ll take more from him and give it to you.

That’s what the Romney tax returns story is really about. Shame on those Republicans who go along with it for their own temporary political gain, and woe to Romney if he can’t use this occasion to make the case for keeping money in the private sector rather than siphoning it off for ever-larger government.

– By Kyle Wingfield