Romney's taxes in the spotlight

Republican frontrunner Mitt Romney finally admits to paying a lower tax rate than most of the popula

The big news from the campaign trail today is a number: Mitt Romney's "effective" tax rate. At an event in South Carolina yesterday, Mitt finally conceded (after weeks of probing) that he pays "probably closer to the 15 per cent rate than anything", putting him firmly in the 1 per cent, and firmly in the sights of people who want to change the tax system.

Mitt's rate is so low because most of his income is from capital gains, which is taxed more generously than other income. A Republican Congress cut the rate from 28 to 20 per cent in 1997, then to 15 per cent in 2001. Thus, the US has a fairly progressive employment tax system, where people pay more as they earn more, but a regressive effective one, where private equity windfalls and stock market profits get special treatment.

Warren Buffett, the legendary "Sage of Omaha", has famously called it iniquitous that he pays less tax, in percentage terms, than his secretary, or, as he wrote in the New York Times last year, the "other 20 people in our office" (whose rates range from 33 to 41 per cent). Barack Obama has tried to promote a "Buffett Rule" - a minimum tax rate for those earning more than $1 million a year. But both have gained little traction outside the progressive press, and the Occupy Wall Street protests. The question now is whether Romney's number will add any grist to the debate.

Commentators yesterday speculated on the timing of Romney's words. The conventional wisdom is that it is better for him to talk about his finances now, while he is doing well in the polls, and the real election is still months away. But it's also possible the admission will plant a seed that will grow and grow under careful cultivation from the Democrats, and sections of the media. Obama is already planning to make inequality a main focus of his rhetoric, hoping to channel some some of the OWS anger. An opponent who pays less tax than most of the population could be a perfect foil.

Ben Schiller is a freelance journalist based in New York.

A year on from the Spending Review, the coalition's soothsayer has emerged to offer another gloomy economic prognosis. Asked by ITV News whether he could promise that there wouldn't be a double-dip recession, Vince Cable replied: "I can't do that.

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Autumn Statement 2015: George Osborne abandons his target

How will George Osborne close the deficit after his U-Turns? Answer: he won't, of course. 

“Good governments U-Turn, and U-Turn frequently.” That’s Andrew Adonis’ maxim, and George Osborne borrowed heavily from him today, delivering two big U-Turns, on tax credits and on police funding. There will be no cuts to tax credits or to the police.

The Office for Budget Responsibility estimates that, in total, the government gave away £6.2 billion next year, more than half of which is the reverse to tax credits.

Osborne claims that he will still deliver his planned £12bn reduction in welfare. But, as I’ve written before, without cutting tax credits, it’s difficult to see how you can get £12bn out of the welfare bill. Here’s the OBR’s chart of welfare spending:

The government has already promised to protect child benefit and pension spending – in fact, it actually increased pensioner spending today. So all that’s left is tax credits. If the government is not going to cut them, where’s the £12bn come from?

A bit of clever accounting today got Osborne out of his hole. The Universal Credit, once it comes in in full, will replace tax credits anyway, allowing him to describe his U-Turn as a delay, not a full retreat. But the reality – as the Treasury has admitted privately for some time – is that the Universal Credit will never be wholly implemented. The pilot schemes – one of which, in Hammersmith, I have visited myself – are little more than Potemkin set-ups. Iain Duncan Smith’s Universal Credit will never be rolled out in full. The savings from switching from tax credits to Universal Credit will never materialise.

The £12bn is smaller, too, than it was this time last week. Instead of cutting £12bn from the welfare budget by 2017-8, the government will instead cut £12bn by the end of the parliament – a much smaller task.

That’s not to say that the cuts to departmental spending and welfare will be painless – far from it. Employment Support Allowance – what used to be called incapacity benefit and severe disablement benefit – will be cut down to the level of Jobseekers’ Allowance, while the government will erect further hurdles to claimants. Cuts to departmental spending will mean a further reduction in the numbers of public sector workers.  But it will be some way short of the reductions in welfare spending required to hit Osborne’s deficit reduction timetable.

So, where’s the money coming from? The answer is nowhere. What we'll instead get is five more years of the same: increasing household debt, austerity largely concentrated on the poorest, and yet more borrowing. As the last five years proved, the Conservatives don’t need to close the deficit to be re-elected. In fact, it may be that having the need to “finish the job” as a stick to beat Labour with actually helped the Tories in May. They have neither an economic imperative nor a political one to close the deficit. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.