Ramesh: I agree that Romney did not give a good answer. But I think that the tax plan in question is good.
Why kill capital-gains taxes for the middle class? (Romney would also eliminate dividends and interest taxes for people making under $200,000 annually — p. 41.)
Americans need to save and invest more than they do, and they need to invest more in something other than their houses. But right now, the reward for investing in the stock market (or, say, buying a bond) is a slew of complicated tax calculations. The tax forms are more painful than the taxes themselves. Romney’s desire to get rid of this regulatory punishment of middle-class investment outweighs his artless answer.
Why not kill the same taxes for wealthier taxpayers, too, as Gingrich asked? Because it would amount, on the campaign trail, to a plan for slashing incoming taxes on the rich. If Romney were to go that route, he’d run up against the criticism that he’s rewarding people who make most of their income from capital at the expense of people who make most of their money from labor.
Romney already has to run against the perception that Bain Capital cut jobs at companies it controlled in order to eke out capital profits. What would be an abstract risk for others would be a concrete peril for him.
Broader tax reform would be lovely. In the meantime, though, Romney’s proposal to encourage more middle-class people to invest in stocks and bonds rather than in houses is sound, economically and politically.
— Nicole Gelinas is a contributing editor to the Manhattan Institute’s City Journal.