"We have got to reform our tax system," Romney said at a morning event here. "Small businesses most typically pay taxes at the individual tax rate. And so our individual income taxes are the ones I want to reform. Make them simpler. I want to bring the rates down. By the way, don't be expecting a huge cut in taxes because I'm also going to lower deductions and exemptions. But by bringing rates down we will be able to let small businesses keep more of their money so they can hire more people."So, according to Romney:
The comments were either a flub on Romney's part or an admission that many of the deductions and exemptions that he will have to target in order to make his tax plan deficit neutral will end up affecting the middle class.
- Under his plan, regular taxpayers shouldn't expect a big tax cut because while he plans on lowering tax rates, he also will get rid of deductions and exemptions.
- The goal of his plan is to reduce taxes on small businesses so that they can hire more people.
If you're scratching your head, you're probably not alone. Small businesses don't pay individual income taxes, their owners do—and even then, only on profits. And the owners of small businesses will have the exact same deductions and exemptions taken away as everybody else. In other words, unless Romney sets up special rules for businesses, what he said makes no sense at all.
Maybe Romney was trying to justify the fact that lowering rates by 20 percent while rolling back exemptions and deductions would disproportionately favor high income tax payers by trying to say they are all small businesses, not people. But even that doesn't make sense, because the vast majority of small business income is earned by middle-income individuals.
The real lesson here is probably that Romney can't explain his tax plan because his tax plan is mathematically impossible. He simply cannot keep all of the promises he's made with it. Perhaps today he was trying to fudge over that fact, but what he really ended up doing is underscoring it.