Tuesday, October 9, 2007

The Romney Plan

If you are an investor or just a dabbler in the market, a statement made by Mitt Romney the other day ought to get your attention.

Romney stated "When I am President, the capital gains and dividend tax rate for middle class American's will be reduced to zero". The ramifications of that are huge. If you own stocks in companies like Altria (MO) or Citigroup (C), wouldn't it be nice to have a 15% increase in your dividend check? If you have held them for less than a year, that instant jump would be a sweet 28%.

The question that now begs to be asked is, who is the middle class? In the Romney plan , middle class is defined families with less than $200,000 in taxable income. That covers a huge swath of people. The reasoning is simple. Savings and investment is done with monies that were already taxed. By taxing them again when they are returned in the form of dividends is "double taxation"? What this tax rate would do is encourage savings in people who ordinarily would not save. It also would push those already investing and saving to increase that activity.

Now the naysayers will say it will be too big of a draw on the treasury and the gov't will just raise taxes in other areas to offset the loss here. If one thing has been proven is that cutting taxes on people has always lead to increasing revenues to the gov't. The reason is simple, cutting taxes increases economic activity. Currently we are experiencing before unseen revenues flowing into our gov't coffers. The problem has never been a "we do not have enough money" scenario but "we spent too much".

Romney's track record in Massachusetts is one that no other candidate can match. He increased revenues, decreased taxes and did them both working with an overwhelmingly Democratic legislature. If he can manage to get thing accomplished in the "blue-est of blue" states, working with the other party in a Congress that only has a narrow majority will be easy.


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