James Pethokoukis at Capital Commerce asks an important question. Where is the economics in the GOP primary?

Talk about weird. It was as if Wednesday night’s Republican presidential debate hosted by Fox News was beamed in from an alternate reality— Earth 2 or something—where the economy is still booming and housing prices are still rocketing higher. Because here on Earth 1, the six-year economic expansion is stumbling thanks to a credit crunch caused by the imploding housing market.

In some ways, it is probably telling that in today’s environment in a GOP primary health care plans came out before tax plans. James points out in another post that Mitt Romney’s tax plan has something to recommend for it:

Romney may have begun to address that issue–and differentiate himself from his rivals–with his populist-yet-pro-growth Middle Class Savings Plan, the details of which he recently released.

Romney said:

I have proposed changing the rate of taxation on capital gains, dividends and interest to 0 percent for middle class Americans. … Under my plan, any taxpayer with Adjusted Gross Income of under $200,000 would pay a tax rate of absolutely 0 percent on all of the income they earn from their savings. This will allow over 95 percent of American families to save and invest tax-free without worrying about the federal government reaching into their pockets and snatching a share of their savings income each year.

I asked a Democratic friend who used to work on the Hill about it. Other than disagreeing, he made two important points. First, it would be difficult for Democrats to object to this. And, second, once it passes, it creates a principle in the tax code for a zero capital gains tax. Once that passes, it becomes hard to raise it again, on the one hand. On the other hand, Congress just negotiates over levels. Is $200k the right level? What about $300k?

Assuming a Democratic Congress, what would Romney do if a Democratic Congress, seemingly more and more likely, were to let the Bush tax cuts expire and replace them with this? Who would get credit for that?

Categories: economy