This post was updated on October 10, 2012.
Mitt Romney plans a tax cut weighted to the wealthiest Americans which will cost $5 trillion. The nonpartisan Tax Policy Center studied Romney’s plans and found that, even if he eliminates all the tax preferences he hasn’t taken off the table for high-income taxpayers, he will still give multi-millionaires a $250,000 tax cut. So to pay for his plan, taxes on middle class Americans would go up by an average of $2,000 for a family with kids.
Governor Romney and his campaign have cited “studies” they claim show his tax plan adds up. But these so-called “studies”—which are largely blog posts and op-eds written by Romney supporters&,mdash;fail to show that. None of them convincingly show that Romney’s plan wouldn’t provide large tax cuts for the wealthy, and all of them rely on unrealistic assumptions about economic growth, tax increases on middle-class taxpayers, or by simply ignoring that some of these tax cuts exist.
They all incorporate the Tax Policy Center’s unrealistically generous assumptions in estimating what Romney would be willing to do—like taking away every family’s charitable deduction and mortgage deduction as soon as they make $200,000—and still couldn’t make the math add up for Romney. As Bloomberg columnist Josh Barro writes, “None of the analyses do what Romney’s campaign says: show that his tax plan is sound.”
That’s why it is no surprise Romney won’t tell us what deductions he’d close to pay for his tax plan. He knows that doing so would show what he has been trying to hide—that his tax plan helps the wealthiest at the expense of the middle-class.
Harvard Professor Martin Feldstein’s Study Op-Ed and Blog Post
Harvard professor Martin Feldstein wrote a Wall Street Journal op-ed that purported to show that it was possible to close enough tax deductions and loopholes for the wealthy to pay for Romney’s tax cuts. In fact, Feldstein’s analysis shows the opposite. His initial study neglected the fact that lowering rates by 20% also reduces the value of deductions by 20%, while he also ignored Romney’s repeal of the estate tax. The Tax Policy Center found that “taking the estate tax and other effects into account, Feldstein’s proposals come up at least $90 billion short of revenue-neutral” in 2015. Tellingly, in a blog post in which he attempted to make the numbers add up for Romney, Feldstein redefines middle class as families making less than $100,000, and his assumptions include significant cuts in tax deductions and exclusions for all families making more than $100,000 a year—an income level that reflects a family with a police officer and a teacher, for example. Even under an “illustrative” example Feldstein has given, these families would have to pay income and payroll taxes on their employer-sponsored health insurance for the first time, and they would lose their child tax credit. In other words, as the Tax Policy Center notes, Feldstein’s study demonstrates that Romney’s plan would indeed be a tax increase on middle-class families—he just denies that these families are actually middle-class.
Princeton Professor Harvey Rosen’s Paper
Princeton Professor Harvey Rosen begins his attempt to show Romney’s plan could add up by simply ignoring several of his tax cuts, including repealing the estate tax (which affects only the top 0.3% wealthiest estates), rolling back Medicare taxes for the 2% of families with the highest incomes and ending the Alternative Minimum Tax. In other words, Rosen wishes away a significant proportion of the tax cuts for the wealthy that are included in Romney’s plan. Rosen also argues that optimistic economic growth assumptions could pay for Romney’s tax plan, but he ignores the fact that the Tax Policy Center study showed that even using research by Romney advisor Greg Mankiw on the impact of tax rates on growth—an approach that wouldn’t be accepted by Treasury, the Congressional Budget Office, or most budget analysts—you can’t make Romney’s plan add up.
American Enterprise Institute Blog Posts
In a blog post, Alex Brill—a former Bush Administration economist and a fellow at the conservative American Enterprise Institute—does not try to estimate Romney’s plan himself. Instead, he tries to argue that the Tax Policy Center was wrong in arguing that Romney’s tax cuts for the wealthy are so large that they can’t be paid for by closing deductions. But Brill fails to show the math can add up. First, he ignores the fact that TPC took, as one analyst wrote, an “impossibly generous” read of the deductions Romney could close—assuming, for example, that as soon as a taxpayer earns $200,001, they would lose all deductions.
Secondly, he assumes that a large portion of the gap could be filled by taxing municipal bond interest—even though doing so would be nearly impossible, and would place the burden largely on state and local municipalities, not high-income taxpayers. Moreover, the Tax Policy Center found—in response to another AEI blog post—that even if the potential impact of taxing municipal bonds and life-insurance savings was considered, it would not come close to paying for Romney’s tax cut for the wealthy.
Thirdly, he ignores certain tax cuts to the wealthy altogether—like the repeal of Medicare taxes for the highest-income Americans. And finally, he simply assumes that economic growth can fill any gap that is left to help pay for the net tax cut for the wealthy.
Heritage Foundation Paper
Heritage Foundation analyst Curtis Dubuy uses largely the same approach as Alex Brill in trying to find ways to “close the gap” that TPC found between the tax cuts Romney has promised the wealthy and the tax breaks he could close. In addition to assuming unrealistically that Romney would close all deductions that TPC noted for everyone over $200,000 and assuming a “magic asterisk” of growth to fill any gap, Dubuy focuses on his claim that TPC did not include a potential change to the income tax treatment of estates—but Dubuy makes inaccurate assumptions about how much that could raise. And he says, for example, that additional revenues could be raised by capping itemized deduction for the wealthiest taxpayers—ignoring that the Tax Policy Center already assumes these deductions are fully eliminated for the wealthy.
Wall Street Journal Editorial Board
Along with the three studies listed above, Governor Romney has also cited a “a couple at the Wall Street Journal.” Romney appears to have chosen to cite editorials by the Wall Street Journal editorial board as “studies” that show his plan can add up. Aside from failing to include any new analysis, the arguments in these editorials fail to rebut the Tax Policy Center’s findings. In one editorial, the WSJ editorial board writes that “on four separate occasions what TPC says is ‘mathematically impossible’—cutting tax rates and making the tax system more progressive—actually happened”, citing Reagan’s Tax Reform Act of 1986, and three other tax cuts from 1980 to 2007. Romney’s proposal has little in common with Reagan’s plan—the Tax Reform Act of 1986 raised taxed capital income at ordinary rates, limited deductible IRA contributions, and eliminated other tax breaks that benefit high-income taxpayers, all steps Romney would not take. And as noted above, even using the highly generous assumptions in a model by one of Romney’s advisors, his plan can’t generate enough growth to pay for his tax cuts for the wealthy. In addition, the Wall Street Journal editorial board has repeated the argument made by AEI’s Matt Jensen concerning bond interest and life insurance build-up and suffers from the same flaws.
Romney Campaign White Paper
The Romney campaign has cited its own advisors’ white paper at times as one of its studies, although the paper provides no details to illustrate how the tax plan would add up. As The Atlantic noted, “This is just his advisers arguing by assertion that the plan works.”
Mitt Romney’s plans to cut the taxes of the wealthiest Americans lead will lead to tax hikes for middle class Americans. That’s the simple arithmetic.