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When most people think of major foreign policy issues facing the U.S., they rarely think of taxes and budget deficits. But during the foreign policy-focused final presidential debate on Monday night, the candidates delved into tax and budget issues – domestic ones, that is, but not those related to foreign policy. Below, we break down the most important tax policy moments of the night.

The Debt “Crisis”
Romney came out swinging saying that President Barack Obama had put the U.S. on a path “heading towards Greece” and that by the end of his second term Obama will have pushed the debt to $20 trillion. He added that a former Chairman of the Joint Chiefs of Staff has called the debt “the biggest national security threat we face.” There is a lot to unpack in this line of attack.

To start, even alarmist estimates, like those by the conservative Heritage Foundation, show that on its “current” path the U.S. still has twenty years before it reaches a debt-to-GDP ratio on par with Greece. More importantly, however, such projections assume that Congress and the President will extend the Bush tax cuts and reverse the spending cuts contained within the sequester; and in truth, that combination is the most serious long term debt threat U.S. faces.

It is also true that Obama’s approach to our long term debt comes up short. Citizens for Tax Justice (CTJ) has criticized Obama’s plan that would increase the deficit by $4.2 trillion over the next ten years by extending a full 78 percent of the Bush tax cuts. But it’s quite a thing for Romney to point fingers at Obama regarding the debt since Romney is proposing an approach far and away more reckless, one that includes about $5 trillion in additional tax cuts on top of the $5.4 trillion cost of a full extension of the Bush tax cuts over the next ten years, which he also endorses.

Compounding this, Romney has not proposed enough specific spending cuts to get anywhere close to balancing the budget. In fact, the Congressional Budget Office has found that Romney’s number one recommendation to cut the deficit during the debate, his plan to “get rid” of Obamacare, would actually increase the deficit by $210 billion over ten years. In addition, even under Romney’s running-mate Representative Paul Ryan’s draconian budget plan, the debt would still increase to $19 trillion in 2016 by Ryan’s own estimations.

Making Romney’s budget math even more fantastical (as Obama correctly pointed out) is his proposal to increase military spending by about $2 trillion over the next ten years compared to Obama’s budget proposal, and about $2.5 trillion compared to what the sequester deal would require.  

Balancing Budgets at the State Level
To support his idea that it’s possible to enact massive tax cuts while also balancing the budget at the federal level, Romney pointed to his record as governor in Massachusetts, where he said he was able to balance the budget four years in a row while still cutting taxes “19 times.” In actuality, Romney was only able to balance the budget because he took the responsible position of actually raising more, rather than less revenue as governor.

According to an analysis by the Massachusetts Taxpayers Foundation, budgets enacted under Romney raised around $700 million in additional revenue annually through higher user fees (a popular approach of raising revenue among anti-tax governors) and closing tax loopholes. This increase in revenue outweighed the cost of his 19 tax cuts, which were mostly small and included gimmicky measures like a sales tax holiday. By contrast, Romney is now proposing tax cuts that would dwarf the revenues he would raise through loophole closing.

Candidates Barely Touch on International Tax Dodging

As we predicted, the candidates barely made a passing reference to the problems facing our international tax system, even though, for example, the U.S. loses an astounding $100 to $150 billion in tax revenues each year to offshore tax havens. The only mention of international tax issues came when Obama noted that the current system “rewards companies that are shipping jobs overseas” and when he repeated the point previously made by Vice President Joe Biden that the territorial tax system Romney supports will create 800,000 jobs – but in places like China rather than the U.S.

Biden and Obama are right, and they cite this study showing that the territorial tax system (PDF) Romney proposes would even further encourage corporations to move jobs offshore and disguise their U.S. income as foreign income in order to avoid U.S. taxes. Rather than moving backwards with a territorial tax system, the U.S. should end deferral of taxes on foreign profits by U.S. corporations, which would immediately solve the issue of companies holding $1.5 trillion of income offshore to avoid taxes on the billions they owe in taxes on that income.