The federal government takes in about $2.2 trillion per year from income taxes. A cut of 20 percent would bring in about $500 billion less, or $5 trillion over 10 years. Mr. Romney also wants to eliminate the estate tax, which only affects estates over $5 million. He says he will balance all of this by getting rid of deductions for the rich. He also wants to "broaden the tax base," which he never defines. It means spreading the income tax to the working poor.
Now, if you believe Mr. Romney, have I got a used car for you! Here's what will happen.
The tax cuts will be enacted, but the deductions will never be eliminated.
Take the mortgage interest deduction. If that's eliminated, the housing market will collapse, because your home will be much more expensive to pay off. Charitable deductions? Everyone from the United Way to the Mormon Church will be marching on Congress to prevent it. Every other deduction has its own champion -- that is, lobbyist -- who will fight to defend it. So where will the money come from? Why, from an energized economy.
How did that work when George W. Bush tried it? No net jobs over eight years.
So let's try it again - It's gotta work one of these times! But it won't. For job creators, every worker is an added expense, and they won't hire anyone unless they can't meet the demand for product. Increasing the supply of product will not increase demand. In an economy like ours, the only way to increase demand is to put more money into the hands of consumers. The best way to do this is to increase the minimum wage, because it puts money into the hands of people who will spend every dollar that comes in. President Obama has proposed raising the minimum from $7.25 to $9.50 per hour, and indexing it for inflation. This is only fair, considering that many laid-off workers can't find any other work, and this increase will restore the wage to the value it had in the 1970s. Most of these are service jobs - in gas stations, Walmarts, and such. They can't be exported to China. This would give no comparative advantage to any competitor, and if the price of my Big Mac goes up a dime, then that's a price I'm happy to pay.