Term Sheet

The latest on private equity, M&A, deals and movements — from Wall Street to Silicon Valley

Mitt Romney: Rich taxpayers will pay their share

August 15, 2012: 5:00 AM ET

In a Fortune interview, the Republican presidential candidate lays out his plan for America now and another four years down the road.

FORTUNE -- On Monday August 6, Mitt Romney spoke by phone to Fortune's Andy Serwer in New York and David Whitford in Boston. He touched on gun control, his tax-cut proposal, his five-point (boiled down from 59) plan to fix the economy, and answered this burning question: If you were to start a business today, what would it be?

This transcript has been edited for clarity.

Q. Specifically, how are your economic proposals different from the president's and why should business people vote for you?

A. President Obama has a record having provided for the American economy his prescription for growth, and it has not worked. His prescription has included a series of stimuluses which have raised the deficit and have not put Americans back to work. You have now had 42 straight months with unemployment above 8%, GDP growth at 2% or below for the last two quarters, a record number of people in poverty and on food stamps. If there's ever been a demonstration of a failed economic policy, we've just seen it.

The ways in which my policies are different from his are quite numerous, but let me put them into five major categories. First of all, I will take advantage of America's energy resources, particularly natural gas, as well as coal, oil, nuclear, solar, and wind. The president on the other hand has reduced permitting and licensing on federal lands and in federal waters by approximately 50%. The course I would take is the opposite. I would dramatically increase licensing and permitting on federal lands. I would open up additional federal lands for exploration, and would look to build out our infrastructure to take advantage of our natural gas resources in particular.

That's first. Second, I believe that we must make trade work for America. If any nation is taking jobs by virtue of unfair practices then we have to hold that nation and its trading practices accountable. China has consistently stolen our intellectual property as well as manipulated their currency and we must take action to prevent that continued series of practices.

In addition we need to open up new markets for American goods. A nation which is a highly productive nation as we are benefits by trade with others. China and European nations have figured that out. In the last three and a half years they have negotiated 44 agreements with nations around the world. The Obama administration has negotiated no new agreements. If I'm president I would aggressively move to open up new markets for trade, particularly in neighboring Latin American markets where the middle class is growing and where our language and time-zone advantages are substantial.

More: Mitt Romney's 5-point plan for the economy

Third, I will act to give our citizens the skills they need to succeed. The president continues to be swamped by the 49 Federal government training programs that are administered from Washington. My approach will be to return funding to states to craft programs that are designed to help their own people get jobs in businesses in their state that are looking for new employees.

In addition we've got to fix our schools. The president is so beholden to the teachers unions that he has been unwilling to take the effort necessary to provide for school choice and higher quality teaching. The proposals I have made -- including having all federal dollars tied to the child and therefore able to be taken by the child and his parents to the school of his choice -- will be a dramatic step in bringing a chance for every child and a choice for every parent.

Fourth area, the deficit. We have to cut the deficit and get America on track to a balanced budget in order to convince investors that America is a good place to invest long term. Ken Rogoff and Carmen Reinhart have shown that when debt exceeds 90% of GDP, you slow the growth of GDP by about one percentage point. That's a lot of jobs. The president has done virtually nothing other than to propose a series of tax increases. The problem with tax increases is they also reduce growth. Raising taxes to try and get more growth is a bit like a dog chasing its tail: It'll never get there. The only way to reduce the deficit is to put in place pro-growth policies and reduce spending.

Finally the fifth area. I will champion small business. As you know, 65% of new jobs over the last 15 years have been created by small business. We're at a 30-year low in new business startups. Helping small business means holding down their tax rate so they can retain more capital and add more jobs. It means getting regulators and regulations that encourage and promote small business rather than swamping it, and it means reshaping health care reform by replacing Obamacare with measures that will bring down the cost of health insurance, rather than as Obamacare does, increasing it. Those are five major targets.

The Tax Policy Center says your revenue-neutral tax-cut scheme lowers the overall tax burden on the rich and raises it on the poor and middle class. Your advisor Eric Ferhnstrom calls their analysis a "joke." What's your response?

I indicated as I announced my tax plan that the key principles included the following. First, that high-income people would continue to pay the same share of the tax burden that they do today. And second, that there would be a reduction in taxes paid by middle-income taxpayers. Those are the key principles of my plan that the Tax Policy Center chose to ignore. Instead they made various assumptions about what they thought I would do which are not in fact accurate. They made an assumption that I would reduce the home mortgage-interest deduction. I will not do that for middle-income taxpayers, as I have already indicated. There's an old expression in the computer world: garbage in, garbage out. They made garbage assumptions and they reached a garbage conclusion. My tax policy will continue to have a very clear direction. We are not going reduce the share of taxes paid by high-income individuals, and we're certainly not going to increase the taxes paid by middle-income taxpayers.

Now interestingly the same center did an analysis of President Obama's tax plan and concluded that he's raising taxes on the middle-class. I would note that if he's reelected he will in fact raise taxes on the middle class. Obamacare is a tax. It's been so determined by the Supreme Court, and it falls predominantly on the middle class. Other measures that relate to providers of health products -- taxes on those products -- will also be borne by the people who use those products, and they are overwhelmingly people in the middle-class. President Obama raises taxes on the middle class. I will under no circumstances raise taxes on the middle class.

Specifically what tax loopholes would you close and what exemptions would you eliminate to make the revenue-neutral equation work?

Simpson-Bowles laid out a formula that shows that you can do just as I described. That you can bring down the rates, limit deductions and exemptions for people at the high end, and with additional growth that comes by virtue of the stimulative action you can reach a balanced budget. I will follow a model similar to Simpson-Bowles and work with Congress to identify which of the alternative methods we should apply to reduce deductions, benefits, and exemptions. Those reductions will occur for people at the high end. I have noted before my commitment to preserve tax preferences for middle-income taxpayers such as homeownership, charitable giving and health care.

Would you consider ending the special tax treatment for carried interest?

You know, what I've said in the past is that if something is a capital gain it should be treated as a capital gain. If something is ordinary income it should be treated as ordinary income. I would look at each type of income, and I'm sure the IRS would do the same, to determine is this really a capital gain or is it ordinary income?

What sectors of the economy are you most sanguine about? Or put it this way, if you were to start a business today what would it be?

My own experience is that there's no such thing as a bad industry. One can be successful by looking to achieve relative competitive advantage in almost any industry. Therefore I don't look for good industries vs. bad industries, I look for good ideas and opportunities to outperform the competition. That being said, if you were to ask me where do I think more jobs are going to come in this country over the coming decade, I believe the energy sector will be one of those. I believe if I'm president you're going to see a dramatic increase in the production of gas and oil, as well as continued production of coal, and I believe you're going to see nuclear come back and I believe renewables will continue to grow. So I believe energy jobs will rise. Second, I believe you're going to see manufacturing return to this country over the coming decade, particularly as we take advantage of our low-cost natural gas.

Third, I believe infrastructure is going to see very substantial investments over the coming decade. I'm talking about highways as well as rail and air and communications infrastructure. And of course health care will be an area of growth, not only because of the aging population, but also because if I'm president we're going to go from a government dominated healthcare system to a consumer choice health care system, and in a consumer choice market-driven system there will be enterprises that find ways to deliver better products at lower cost, and they will grow and be successful.

When you were governor of Massachusetts and you signed strict gun control legislation in Mass, you said, "deadly assault weapons have no place in Massachusetts." Are you willing to say that deadly assault weapons have no place in the United States?

I don't think that this is a time for us to be passing new gun legislation. I believe the laws we have in place, if enforced, are appropriate, and I don't look forward for new laws. We don't know what the circumstances were yet it in Wisconsin. We do know that the individual who carried out the attack in Aurora, Colorado had made bombs of various kinds, and those of course are illegal, but the fact that something is illegal does not keep a deranged person from doing a deranged thing. So imagining that making something illegal is going to stop it is not realistic.

You've promised to cap government spending at 20% of GDP. Specifically where will you cut?

There are three major areas I have focused on for reduction in spending. These are in many cases reductions which become larger and larger over time. So first there are programs I would eliminate. Obamacare being one of them but also various subsidy programs -- the Amtrak subsidy, the PBS subsidy, the subsidy for the National Endowment for the Arts, the National Endowment for the Humanities. Some of these things, like those endowment efforts and PBS I very much appreciate and like what they do in many cases, but I just think they have to stand on their own rather than receiving money borrowed from other countries, as our government does on their behalf.

Second there are major federal programs which I believe should be returned to the states where they can be run more efficiently with less fraud and abuse. So for example Medicaid, which is the health care program for the poor. Housing vouchers, food stamps. I think these programs can be taken over by the states, grown at inflation or in the case of Medicaid, inflation plus 1%, and in doing so we will save approximately $100 billion a year within four years.

More: Mitt Romney's other tax secret

Then there are the remaining programs that exist which will remain at the federal government level. I will reduce the headcount in those programs by approximately 10% through attrition. And I would like to tie the compensation and benefits for federal workers to those which exist in the private sector. I don't think government workers should be paid a better deal than the taxpayers who are paying for them. That saves about $47 billion a year by the way.

With regards to the military, I believe that we will find enormous opportunities for efficiency and cost savings in the military. I do not anticipate those savings will be able to be used to reduce the deficit but instead will be necessary to increase the number of active-duty personnel by approximately 100,000, to restore our military equipment which has been destroyed in conflict, and to invest in the coming technologies of warfare. I do not believe the world is so safe that we can turn away from our investment in national security.

Four years from now, you're running for election, what specific improvements in the U.S. economy will you be able to point to?

I believe that you're going to see us having created 12 million new jobs. That GDP growth will be approximately 4%. That Americans and investors in America's debt will see that we're on track to have a balanced budget, and therefore we will have restored our AAA credit rating. And families across the country will be able to get the jobs they need. They'll see home prices on the rise again and will be confident that their kids will have a better future than the lives we've enjoyed.

Join the Conversation
Current Issue
  • Give the gift of Fortune
  • Get the Fortune app
  • Subscribe
Powered by WordPress.com VIP.