(October 2012) If you don’t have a clear idea on what Romney would try to do with taxes if he is elected, you’re not alone. Unfortunately, there seems to be more coverage of Mitt Romney’s tax returns than his tax policy. Below is an outline of his announced tax policy and its potential impact on investing. Keep in mind however that its unlikely that if he is elected, all of this would be passed by congress.
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Summary of Romney’s Tax Plan
- 20% cut in income taxes for everyone. For example, if your are currently in a 28% federal income tax bracket, Romney’s proposal would cut your income tax rate to 22.4%
- No taxes on interest, dividends and capital gains for households that earn less than $200,000.
- Repeal of the alternative minimum tax (AMT)
- Closing of Unspecified Tax Loopholes
Here is the more detailed version and how that compares to Obama’s proposals:
Romney Tax Plan vs. Obama on Tax Brackets
Romney – 20% Cut For Income Taxes
- Romney would seek to reduce everyone’s current income tax rate by 20%. He would also make the tax breaks passed in 2001 and 2003, and are set to expire soon, permanent.
Obama – Higher Income Taxes for The Top Tax Brackets
- President Obama is proposing to keep the current income tax rates for the four lowest tax brackets. He would increase tax rates for joint filers making above $241,900 and single filers earning more than $199,350.
Romney Tax Plan vs. Obama on Capital Gains, Interest Income, And Dividends
Governor Romney is proposing no capital gains, interest income or dividend taxes for households with under $200k in pre-tax income. Otherwise, he would keep in place the 2012 tax rates.
President Obama would let existing tax breaks expire, additionally there is a new 3.8% tax which applies to interest income, dividends and capital gains. Furthermore, he has indicated that he would like to raise the capital gains tax to 30% and treat dividend income the same as ordinary income for high earners.
Romney Tax Plan vs. Obama on the Alternative Minimum Tax (AMT)
Governor Romney has proposed repealing the the alternative minimum tax.
President Obama has proposed replacing the AMT with the “Buffett Rule”. Earners making more than a $1 million dollars per year would be required to pay an effective tax rate of at least 30%.
Romney on the Closing Of Tax Loopholes
Governor Romney has indicated that the loss of revenue through the lower proposed tax rates would be offset in part by closing tax loopholes. He has yet to define which loopholes would be closed, however many believe that he would need to end the deduction for mortgage interest and end the tax benefit for municipal bonds.
The Big Picture: Romney and Obama
Governor Romney wants to cut taxes for everyone. In order to accomplish this goal Romney would need the cooperation of both houses of congress. The senate is likely to remain with a Democratic majority. Thus, any plan that he proposes would have to be scaled back to get congressional backing.
President Obama want to increase taxes on rich. Like Romney, he faces a congressional roadblock in the form of a Republican controlled house. However, taxes will be increasing automatically without Obama needing to pass any legislation. As Republicans want to rollback these tax increases, Obama has some leverage to negotiate a deal.