Analysis: Santorum tax plan cuts rates, keeps goodies

WASHINGTON Mon Jan 9, 2012 10:47am EST

Republican presidential candidate former U.S. Senator Rick Santorum (R-PA) speaks during a Republican presidential candidates debate in Concord, New Hampshire, January 8, 2012. REUTERS/Jessica Rinaldi

Republican presidential candidate former U.S. Senator Rick Santorum (R-PA) speaks during a Republican presidential candidates debate in Concord, New Hampshire, January 8, 2012.

Credit: Reuters/Jessica Rinaldi

WASHINGTON (Reuters) - Republican presidential hopeful Rick Santorum appeals to the party's hunger for low taxes, but earns poor grades from economists across the U.S. political spectrum who say the plan will bloat the already intractable U.S. deficit.

Santorum has garnered new attention after coming from behind to virtually tie Mitt Romney in last week's Iowa caucuses, the first nominating contest for 2012 in the race to take on President Barack Obama on election day in November.

Riding his Iowa momentum, Santorum is rising in some opinion polls in New Hampshire, which has its primary on Tuesday.

The former Pennsylvania senator's low-tax ideas mesh with the party's conservative mantra, but he offers no way to recoup the revenue losses, and the plan will surely deepen the deficit,

the analysts said. His proposals to keep cherished individual tax breaks that reformers want to slash also mar his plan, they said.

"The Santorum tax plan would, by any metric, lead to a massive increase in the deficit and would take tax receipts well below its average post-war level," said Alex Brill, an economist at the conservative American Enterprise Institute.

"By keeping all the biggest tax expenditures while increasing other deductions and credits, the plan simply doesn't add up. Where will the revenue come from?"

A spokesman for Santorum did not respond to a request for comment on the criticism.

The former Pennsylvania senator proposes cutting top marginal corporate tax rates to 17.5 percent from 35 percent - with a special zero rate for manufacturers to boost jobs in this sector. He would cut rates for the richest individuals to 28 percent, from 35 percent, but keeps breaks that economists say distort the market, including the mortgage and healthcare deductions.

Many economists across the political spectrum say the current U.S. corporate rate is too steep compared with global rivals, but most propose cutting the rate with other changes so as not to bloat the deficit.

Santorum's website says its zero tax rate for manufacturers will "spur middle income job creation in the United States and benefit from the job multiplier effect in manufacturing."

The conservative Tax Foundation criticized the plan, in particular its manufacturing special carve-out.

"It gets a D plus, which is the lowest grade we gave," said William McBride, an economist with the think tank.

McBride said Santorum's new tax break for manufacturers would likely lead all sorts of companies to claim to be eligible, similar to a manufacturing deduction grabbed by nearly every company a few years back.

"It would create very unstable revenue," he said.

Another conservative economist, who asked not to be identified due to the political sensitivity of the race, called it "industrial planning," a term associated with government control of business - anathema to Republicans.

In the aftermath of the financial crisis, government spending shot up and revenue dwindled to 15 percent of gross domestic product, the lowest level since 1950.

FAMILY VALUES?

Santorum says he will cut spending by $5 trillion over five years, and boost the tax deduction for families with children.

More than any of his rivals, Santorum is playing up social issues in his campaign, especially the importance of "family values." The church-going Catholic is also fervently anti-abortion and opposes gay marriage.

His bigger deduction for families with children will, ironically, add more taxpayers to the rolls of those who pay no federal income taxes, said Howard Gleckman, a tax expert at the liberal-leaning Tax Policy Center.

Just under half of Americans do not pay federal income tax, according to the Tax Policy Center, a statistic that has become a conservative criticism of the current system. A large number of these individuals are retired and pay payroll, sales and other taxes.

Overall, Gleckman blasted the plan for benefiting corporations and the wealthy at the expense of working and middle class.

"This should play well in future (Republican) primaries," Gleckman said. "If he somehow gets the nomination, he'll still have to explain the huge hole he'd blow in the budget."

SANTA CLAUS LISTS

There is no official cost estimate for the impact of Santorum's plan on the deficit, but the Tax Policy Center is seeking details from the campaign to size it up. The group recently forecast that Mitt Romney's tax proposal would slash federal tax revenue by $180 billion to $600 billion in 2015.

Last month, the TPC estimated that Newt Gingrich's plan would cut government revenues by at least $850 billion in one year, nearly a third of the government's $2.3 trillion revenue take in 2011.

Most of the Republican hopefuls have touted new tax schemes, with the most radical approach taken from Herman Cain, who dropped out of the race amid several sexual harassment accusations. Cain's 9-9-9 plan pitched a consumption tax, an idea that economists back but is unlikely to gain traction in the United States.

Most Republicans and corporations are pushing the United States to move to a "territorial" tax system, whereby multinational firms are not taxed on foreign profits. Critics say this will add further incentive for U.S.-based firms to outsource operations and jobs abroad.

By contrast to most of his Republican peers, Santorum sidesteps this issue, calling for a low tax rate on foreign income -- but only for manufacturers.

The conservative economist said candidates inevitably give pie-in-the-sky tax proposals in the heat of campaigns, and Santorum's is no different.

"The tendency of politicians is to compile tax reform plans the way kids compile their Christmas lists for Santa Claus," this person said. "If Santorum intends a huge tax cut, he should say so and then explain its size and why that's appropriate. If he doesn't intend a huge tax cut, then all he's done is tell half the story. The other half is how to offset the cuts."

(Editing by Philip Barbara)

(Reporting By Kim Dixon)

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Comments (7)
PolishBear wrote:
Ever since Massachusetts becames the first state in the nation to allow Gay couples to legally marry, hundreds of thousands of Gay couples across the United States have either gotten married or registered their civil unions or domestic partnerships. These are law-abiding, taxpaying Gay Americans who have made a solemn pledge to one another before family and friends.

But now along comes Rick Santorum and HIS pledge to forcibly DIVORCE those hundreds of thousands of couples. Santorum has made it abundantly clear that under HIS administration there will only be one law governing marriage in the United States, and that law will NOT apply to Gay couples. Santorum has unapologetically insisted that he wants all those legal marriages and civil unions and domestic partnerships to be declared null and void.

The quest for marriage equality by Gay couples has absolutely nothing to do with Straight (i.e. heterosexual) couples. Nothing is changing for them. Nothing is happening to “traditional marriage.” Most people are Straight, and they will continue to date, get engaged, marry and build lives and families together as they always have. None of that will change by allowing Gay couples to do the same. This is really not any sort of a “sea change” for marriage, since the only difference between Gay and Straight couples is the gender of the two persons in the relationship.

While Rick Santorum may prefer to focus on the economy as we get closer to November, anyone who loves and supports their Gay friends, family members, and co-workers needs to take a hard look at the theocratic road Santorum intends to take us down.

Jan 09, 2012 11:28am EST  --  Report as abuse
USAPragmatist wrote:
Just more evidence showing that the GOP only pays lip service to actual fiscal responsibility. All part of the master plan, ‘Starve the Beast’.

Jan 09, 2012 11:59am EST  --  Report as abuse
JamesChirico wrote:
The GOP clown car lurches forward with Santorum the latest in a mostly unqualified field. A zero tax rate is meaningless without demand. The GOP tells America increasing the two trillion on balance sheets, reducing the 3% compliance cost will create millions of jobs. No sane businessman will invest in expansion with a market. Demand is needed, which was increased albeit by a 1.6 trillion additional debt by the Obama administration. Most of that money went into the hands of consumers via better safety nets, 500,000 employed by saving GM, 275 billion in Stimulus tax cuts, 275 billion in unemployment extensions, 140 billion retaining state workers, 75 billion in new infrastructure. The voodoo economics of low tax, trickle down, no regulation, has failed 3 presidents. Reagan had the S&L failure, old man Bush his recession, Dubya the great recession that lost 7 million private secotr jobs in his last signed budget year and 20% of mortgages underwater taking the housing sector from 16% of GDP to 2%. The GOP touting the disease as the cure is a hard sell to this American.

Jan 09, 2012 12:28pm EST  --  Report as abuse
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