Romney's Fanciful Tax Plan

Published Aug 8, 2012. By Scot Lehigh. In The Boston Globe.

Tax policy specialists have just given Mitt Romney the analytical equivalent of a big red “F” on his tax-cut plan, an expert conclusion that highlights the misleading way in which the Republican candidate is pursuing the presidency.

Romney’s poor assessment comes from the highly credible Tax Policy Center, which just examined his proposal for an across-the-board 20 percent income tax cut. That reduction in income tax rates, Romney says, would be paid for by ending loopholes and deductions, but not those that the middle class depends on.

That sounds good, but it’s just not possible. As the study’s authors put it: “[A] revenue-neutral individual income tax change that incorporates the features Governor Romney has proposed . . . would provide large tax cuts to high-income households and increase the burdens on middle- and/or lower-income taxpayers.”

There’s a very simple reason for that: The value of the tax cuts Romney would grant upper earners is considerably larger than the tax loopholes that benefit them, once you promise, as Romney has, not to change the preferential treatment of investment income. Romney has also said his plan won’t widen the deficit. So if the rich are paying less, he would have to make up the difference by closing or reducing many tax-code deductions that benefit the middle class. On average, the center estimates that those earning more than $1 million a year would get an $87,000 tax cut, while households making less than $200,000 would pay $500 more a year in taxes.

Among federal fiscal experts, the assertion that the GOP candidate’s plan would shift the tax burden downward is hardly controversial. “I think any nonpartisan analyst looking at Romney’s plans is going to reach the same straightforward conclusion,” says Jeff Vanke, senior policy analyst at the bipartisan Committee for a Responsible Federal Budget.

“The conclusion hardly shocks people who follow the issue closely,” agrees Bob Bixby, executive director of the nonpartisan Concord Coalition, a leading Washington fiscal watchdog.

A delighted President Obama has used the Tax Policy Center’s findings to label Mitt’s policies “Romney Hood,” which he says is “like Robin Hood in reverse.” For his part, Romney calls the claim that he’ll increase taxes on the middle class “simply false.”

Actually, it isn’t that simply false. Raising the middle-class tax burden surely isn’t Romney’s intention. Yet to avoid that result, something else has to give.

He might, for example, borrow more to pay for the tax cuts. But that would raise havoc with his (already dubious) promise to balance the budget in his first term.

Faster economic growth than the study assumes could make up the difference, insists the Romney camp, as could deeper cuts in federal spending. Two problems: Even if Romney’s tax cuts triggered an implausibly high level of economic activity, they still wouldn’t yield enough growth to keep tax revenues from declining. On the spending side, meanwhile, Romney’s deficit-fighting plans are already premised on making very large cuts. Romney asserts he’d reduce federal spending by more than 4 percent of GDP, which would mean slashing projected annual spending by $550 billion or more by 2016.

 

How? Romney has had little realistic to say on that front. Which is one reason why, when the Committee for a Responsible Federal Budget critiqued his plans, it concluded that they would increase the national debt from an estimated 75 percent of GDP in January 2013 to 96 percent in 2021; Obama’s would only nudge the public debt up to 76 percent of GDP over that period.

As a presidential candidate, then, Romney is teetering on the brink of a credibility chasm created by his party’s irreconcilable ideological demands. To lead today’s GOP, one must be both a tax cutter and, rhetorically at least, a deficit hawk. But the only way to fulfill both roles is by decimating entitlements like Medicare and Medicaid, to say nothing of other domestic programs.

No wonder, then, that Romney is keeping things vague. Like a magician using smoke and mirrors to help weave eye-catching illusions in a dim theater, he knows bright lights and expert scrutiny are the enemy of his legerdemain.

And yet, it should tell voters something important that the GOP’s self-styled fiscal and economic answer man is proffering plans that can’t pass muster with the experts.