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The Most Important Lesson from the TPC Analysis of the Romney Tax Plan Is Neither What Obama Nor Romney Suggests

August 1st, 2012 . by economistmom

tpc-on-romney-tax-plan-080112

Today the Tax Policy Center (TPC) released this analysis of the distributional effects of Mitt Romney’s proposed tax reform plan, and it got so much (deserved) attention that both President Obama and presidential candidate Romney talked about it.  Too bad both candidates were speaking entirely as candidates and not as policy analysts or even as the supreme policymaker that we will elect one of them to be.

President Obama decided that the report was sufficiently unfavorable to the Romney plan as to make it great campaign speech fodder.  As reported in Politico:

President Obama is set to attack Mitt Romney on Wednesday for pushing tax reforms that would cut taxes for the rich while raising the burden on other taxpayers.

It’s an argument that Obama often makes, but as he speaks in Mansfield, Ohio, it will come with the added weight of a new report from the nonpartisan Tax Policy Center — which is affiliated with the Urban Institute and the Brookings Institution — that backs up his claim.

“Just today, an independent, non-partisan organization ran all the numbers,” Obama is to say, according to excerpts of his speech released by the Obama campaign. “And they found that if Governor Romney wants to keep his word and pay for his plan, he’d have to cut tax breaks that middle-class families depend on to pay for your home, or your health care, or send your kids to college.  That means the average middle-class family with children would be hit with a tax increase of more than $2,000.”

“But here’s the thing – he’s not asking you to contribute more to pay down the deficit, or to invest in our kids’ education,” Obama adds. “He’s asking you to pay more so that people like him can get a tax cut.”

Romney’s response?  As reported by Lori Montgomery in the Washington Post:

The Romney campaign on Wednesday declined to address the specifics of the analysis, dismissing it as a “liberal study.” Campaign officials noted that one of the three authors, Adam Looney of Brookings, served as a senior economist on the Obama Council of Economic Advisers. The other two authors are Samuel Brown and William Gale, both of whom are affiliated with Brookings and the Tax Policy Center.

“President Obama continues to tout liberal studies calling for more tax hikes and more government spending. We’ve been down that road before – and it’s led us to 41 straight months of unemployment above 8 percent,” said Romney campaign spokesman Ryan Williams. “It’s clear that the only plan President Obama has is more of the same. Mitt Romney believes that lower tax rates and less government will jump-start the economy and create jobs.”

But what does the TPC analysis actually tell us–meaning us people who aren’t campaigning to be president–about the Romney tax plan?  It’s well summarized by Figure 2 from the paper, above, which decomposes the bottom line conclusion that a revenue-neutral Romney plan would give generous tax cuts to the rich paid for with net tax increases on everyone else, into two parts:  (i) how much the tax cuts from the tax rate reductions are skewed toward the rich; and (ii) how much the revenue offsets from (Romney-limited) base broadening are skewed toward lower- and middle-income households.  Combined, we would end up with a revenue-neutral (relative to a business-as-usual, policy-extended baseline) and highly “regressive” tax reform, with relative and absolute tax burdens falling for “the rich” (defined here as households with incomes above $200,000–about the top 5%) and increasing for everyone else.

This makes the Romney proposal, specifically, a bad idea, but this should not be taken as a blanket indictment of any kind of tax reform proposal that tries to pay for low (or even lower) marginal tax rates by broadening the tax base.   From a purely mechanical standpoint (leaving aside politics, I mean), both parts of the reform could be modified fairly easily to come up with a revenue-neutral but much more progressive (with average tax burdens rising more steeply with income) tax reform package.  On part (i)–the rate cuts–just don’t cut rates so much (or at all) at the top.  On part (ii)–the base broadeners–just make sure you reduce some of the tax expenditures that currently benefit capital income (which is highly skewed toward the rich) and ideally additionally limit other tax expenditures such that higher-bracket households don’t receive  higher percentage subsidies.  (The President’s proposal to limit itemized deductions to the 28 percent rate is an example of this latter strategy.)  Romney goes wrong on both parts because he chooses to cut tax rates the most for the rich and at the same time refuses to reduce current tax subsidies that produce very low effective tax rates on capital income (and hence the rich).  The TPC analysis explains that taking tax preferences on capital income completely off the base-broadening table (as Romney would do) means that the revenue-raising potential from base broadening is cut by about one third.  So from my perspective, this particular version of a base-broadening tax reform scores poorly on fiscal responsibility grounds and not just distributional grounds.

But it seems that President Obama’s emphasis on the TPC analysis was to underscore that the offsets would imply higher taxes for most of us, even more than to complain about the proposed rate cuts lowering tax burdens on the rich.  So I’d hate for the message heard from the President to be “we shouldn’t pay for tax cuts with base broadeners”–as the shorthand for a more accurate characterization of TPC’s conclusion that “we shouldn’t pay for large tax rate cuts on the rich with base broadeners that fall disproportionately on the non-rich.”

And by the way, the main lesson from the TPC analysis is also not what Romney suggests–that the Tax Policy Center is (suddenly) “liberal” and biased.  ;)

24 Responses to “The Most Important Lesson from the TPC Analysis of the Romney Tax Plan Is Neither What Obama Nor Romney Suggests”

  1. comment number 1 by: SteveinCH

    Diane,

    You’re simply wrong on one point and absurd on another. The change in rates in the Romney plan does nothing to tax incidence. If all rates are adjusted down proportionally, tax incidence by group is unchanged. The math is pretty straight forward.

    As to the absurdity, it’s in the notion that the differential rate on capital should now be considered a tax expenditure. What about the differential rates on income based on income level. I guess I’m now free to describe all the income foregone by a failure to have a flat 35% tax rate as a tax expenditure.

  2. comment number 2 by: economistmom

    But Steve, the tax rate reductions in Romney’s plan are far from proportional. As the TPC paper explains on pages 2-3:

    This plan would extend the 2001-03 tax cuts, reduce individual income tax rates by 20 percent, eliminate taxation of investment income of most taxpayers (including individuals earning less than $100,000, and married couples earning less than $200,000), eliminate the estate tax, reduce the corporate income tax rate, and repeal the alternative minimum tax (AMT) and the high-income taxes enacted in 2010’s health-reform legislation.

    All the “extras” beyond the proportional rate reduction reduce the effective tax rate on capital income compared with labor income–still beyond that under current policy and the already preferential rates on capital gains and dividend income. One can start with the opinion that the “right” tax base should not include capital income (as you apparently do), but that doesn’t change the fact that if you don’t tax capital income at the same rate as labor income–or even enlarge the difference–you make the system more regressive when the measure of ability to pay (and the way we sort households by income) is total income, labor plus capital income. That’s simply because capital income makes up a far larger share of income for the rich than for lower- and middle-income households.

  3. comment number 3 by: Vivian Darkbloom

    Economist Mom,

    It is unfortunate that you chose to use that particular graphic (Figure 2). That graphic does *not* represent the final analysis of the Romney plan. As I understand it, this Figure is merely an intermediate step in that analysis. Please note that the graphic represents the amount of “revenue *available* from revenue broadening” from each group—not the amount of revenue that *would actually be raised* from each group in a revenue-neutral plan (otherwise the amount of potential revenue and the amount of revenue loss (the blue and the red) would be equal.

    As explained in the study, the Romney plan proposes to raise revenue from “base broadening” from the top first. While the study indeed does (ultimately) conclude that *if the plan were to be revenue neutral* the overall impact would be disproportionately favorable to the top echelons. Your graph, though, visually overstates that case.

    The key takeaway, I think, is that *if measured on a static basis* (which this study does), the plan cannot be *both* revenue neutral *and* proportionately neutral. If dynamically scored, I believe that the plan would not need to push down so far to the lower income echelons in its “base broadening” measures.

    Another technical point is that the plan uses the current policy baseline. Among other things this means that the plan reverses the “high-income taxes enacted in the 2010 health-reform legislation”. I did not hear you complain about the disproportionate distribution of that.

  4. comment number 4 by: AMTbuff

    I agree that Figure 2 is misleading. If the red bars were capped at the length of the blue bars, as would be the case for a politically feasible plan, the result would be less striking. We could then debate whether or not lower rates at the high end would generate enough additional recognition and reporting of taxable income to make the plan revenue neutral.

    I applaud the TPC for eschewing the current law baseline, which I regard as fantasy. TPC’s baseline choice was eminently reasonable. Their conclusions are fair and correct. TPC has written some papers that one could characterize as slanted, but this is not one of them.

    I would like to have seen a discussion of how high the elasticity of taxable income would need to be at the $1M level in order to achieve distributional neutrality, but that level of analysis is beyond their scope. It’s also beyond the comprehension limits of 95% of their readers.

  5. comment number 5 by: Vivian Darkbloom

    I continue to be flummoxed by the TPC’s recurring suggestion that reducing marginal tax rates makes it *more difficult* to make up for that lost revenue by eliminating tax expenditures. That remark was again made in the most recent paper and it makes no sense to me in the context of a plan to *simultaneously* reduce rates and eliminate tax deductions. The fact that it was repeated here suggests to me that there may be a serious flaw in their logic, if not their methodology.

    Remember, that this estimate is supposed to have been made against a *consistently-defined* “current policy baseline”.

    Here’s from the report at page 8:

    ““These provisions would reduce tax revenues by an estimated $360 billion in 2015 relative to our modified current policy baseline, not including any base broadening or macroeconomic effects (or reductions in corporate tax rates).” Page 8

    This appears to be “step 1″ of the analysis wherein the TPC estimates the revenues to be lost by reducing marginal rates across the board by 20 percent (and a few other adjustments to capital taxation, etc).

    Implicit in this revenue loss estimate should be an assumption that it *already* reduces the benefit of tax expenditures. For example, if it were to reduce marginal rates from 35 percent to 28 percent, the value of a tax expenditure is *already* reduced by 7 cents on the dollar and the estimate of revenue loss should be adjusted accordingly.

    They then go on to say:

    ““In addition, the fact that marginal tax rates are 20 percent lower reduces the revenues available from eliminating tax breaks. For example, eliminating $1 of deductible mortgage interest raises $0.35 when the top rate is 35 percent, but only $0.28 when the rate is 28 percent.17 These factors reduce the available revenues from the $1.3 trillion headline number to the $551 billion we estimate.” Page 11

    Of course, against a current and consistent baseline of a 35 percent marginal rate, eliminating a mortgage interest deduction *will* generate additional revenue of 35 cents for each mortgage interest dollar if we include the 7 cents that should be implicit in Step 1 with the 28 percent in Step 2.

    The problem that I have is that given the persistent suggestion that somehow reducing tax rates “makes it more difficult”, I no longer have confidence that the TPC loss of revenue estimate in Step 1 has not been overstated. I wish they would clarify this aspect of their methodology.

  6. comment number 6 by: Vivian Darkbloom

    “One can start with the opinion that the “right” tax base should not include capital income (as you apparently do), but that doesn’t change the fact that if you don’t tax capital income at the same rate as labor income–or even enlarge the difference–you make the system more regressive when the measure of ability to pay (and the way we sort households by income) is total income, labor plus capital income. That’s simply because capital income makes up a far larger share of income for the rich than for lower- and middle-income households.”

    But, Economist Mom, you have not read the TPC report very carefully. One should, and they in fact do, use a (modified) current policy baseline against the Romney plan as they understand it:

    “Finally, we assume that taxes on long term capital gains, dividends, and interest income would be eliminated for married couples filing jointly with income under $200,000 ($100,000 for single filers and $150,000 for heads of household). Rates for taxpayers above the threshold would remain at current statutory rates—15 percent for long-term gains and qualified dividends and up to 35 percent on interest income.”

    So, in fact, the plan benefits lower- and middle- income folks much more than “rich” taxpayers, who benefit not at all. And, the standard of “rich” is here well below the Obama definition.

  7. comment number 7 by: SteveinCH

    Diane,

    Let me respond quickly to the points in your block quoted piece.

    1. Assuming the extension of the 01/03/10 tax cuts. This is a question of the baseline and, by definition, has nothing to do with changes in progressivity. However, off of the current law baseline, the impact of the 01/03/10 tax changes is actually to make the system a very small bit more progressive.

    2. Reducing rates from the base by 20 percent. Proportional rate reductions have no impact on distribution as you implicitly admitted in your previous post.

    3. Eliminating the taxation of capital income for people with incomes under $100K ($200K for couples). To Vivian’s point, it’s pretty hard to figure out how this make the tax code favor the rich (at least by the President’s definition). If you want to argue distributional effects within say the top 25% of taxpayers, I suspect you could but that’s not the analysis that is being done here.

    4. Eliminating the estate tax. I really do think this is a red herring. I guess it depends on whether the estate tax is paid by estates or decedents. If the former, it’s outside any notion of distribution because the people are dead. If paid by decedents, I’ve yet to see a non assumption based argument about the incidence of the estate tax on decedents. Maybe you have one but it’s not really in the TPC calculus.

    5. Reduce the corporate income tax rate. This is one example of a change that benefits high income folks but not a heck of a lot since corporate taxes generate little money anyway.

    6. Repealing the AMT. Again, the incidence of an unpatched AMT as I understand it is largely in the upper-middle income groups. It’s unusual for the very wealthy to get hit by the AMT because their deductions are usually too low relative to their GI.

    7. Repealing the taxes in the ACA. This does proportionally help the wealthy because they are the only people who pay the tax at all.

    So of the 7 things you cited, 2 help the wealthy and 1 (the capital income change) hurts them in terms of incidence. These changes have very little effect on overall incidence relative to the elimination of deductions.

    Finally as for your contention about the right tax base and capital income, I think you are ducking the point. My point was that the same logic you are using would suggest that the 10% tax rate on ordinary income be counted as a 25% tax expenditure (or 29.6 or 32.6% depending on the baseline one choose to use). It’s no different and stretches the notion of a tax expenditure to the extreme.

  8. comment number 8 by: AMTbuff

    7. As I read the TPC paper, the ACA taxes were excluded from the baseline because they did not exist in 2011. Therefore repeal of the ACA taxes would have zero effect relative to TPC’s current policy baseline. Was my reading incorrect?

  9. comment number 9 by: SteveinCH

    Not sure AMT, I don’t think I’ve read it closely enough.

  10. comment number 10 by: Vivian Darkbloom

    This is what the TPC paper says:

    “This baseline assumes permanent extension of the 2001, 2003, and 2010 tax cuts and certain other provisions (except the temporary payroll tax cut and a few temporary investment incentives) and the scheduled implementation of the ACA provisions”.

    I read this as saying the ACA provisions are part of the baseline. Gramatically, it has nothing to do with the parenthetical.

  11. comment number 11 by: AMTbuff

    Well then I take back my positive comment about the baseline. Using this baseline they ding Romney for repeal of ACA, which has nothing to do with tax policy.

  12. comment number 12 by: Vivian Darkbloom

    “Well then I take back my positive comment about the baseline. Using this baseline they ding Romney for repeal of ACA, which has nothing to do with tax policy.”

    It’s too bad the TPC does not publish the detailed data behind these numbers. I’ve said it before on the TPC blog and I’ll say it again here: they should. In fact, they should make their entire modeling program available as “open source”. If the TPC and other groups like it want to play such an influential role in this policy debate, particularly to the extent that it could swing a Presidential election, then they should be more open about how those numbers are put together, particularly since “non-partisan” outfits like the TPC are taxpayer subsidized (ironically, one of the things Romney’s plan, if taken literally, would partially eliminate). Doing so would preclude a lot of needless speculation. As it is, due to the lack of disclosure of these details, one simply has to accept the results on trust.

    For example, one of the things that begs clarification is the issue of the effect of the ACA provisions on the numbers. While the TPC has indicated that they have included the ACA increases in their modified baseline, they do not specifically indicate that their reduced revenue estimate includes *both* a 20 percent marginal rate cut *and* an ACA reversal (the Romney plan itself on the website does not say that an ACA reversal and the 20 percent cut would be cumulative—in fact, the website section on tax does not include ACA at all.

    The issue is further confused in footnote 6 of the TPC paper wherein they “assume” the ACA reversal is “paid for” and that similar results would be achieved if it were not in the baseline. I cannot be certain, but what this seems to mean is that while they have included the ACA increases in the baseline, they’ve added the same amount back to Romney’s revenues by assuming it would be paid for *outside the plan*.

  13. comment number 13 by: Vivian Darkbloom

    I wrote in the prior message:

    “While the TPC has indicated that they have included the ACA increases in their modified baseline, they do not specifically indicate that their reduced revenue estimate includes *both* a 20 percent marginal rate cut *and* an ACA reversal (the Romney plan itself on the website does not say that an ACA reversal and the 20 percent cut would be cumulative—in fact, the website section on tax does not include ACA at all.”

    It is clear from the TPC paper that their model does dock Romney revenues under the assumption that the ACA will be reversed:

    “In our example, we assume that the 2001 and 2003 tax cuts, currently scheduled to expire in 2013 are extended and that marginal tax bracket rates are then cut by an additional 20 percent. As a result, the top bracket would fall from 35 percent to 28 percent, while the bottom bracket would fall from 10 percent to 8 percent in our example. We also assume that the AMT, the federal estate tax, and the tax provisions contained in the Affordable Care Act are repealed. Finally, we assume that taxes on long term capital gains, dividends, and interest income would be eliminated for married couples filing jointly with income under $200,000 ($100,000 for single filers and $150,000 for heads of household). Rates for taxpayers above the threshold would remain at current statutory rates—15 percent for long-term gains and qualified dividends and up to 35 percent on interest income.” Page 7

    Re-reading this makes it more clear to me that the TPC is not only including the ACA tax increases in the baseline, but that they are assuming the Romney plan eliminates those increases *in addition to* the 20 percent rate cut.

    I cannot reconcile this with the somewhat cryptic comment in footnote 6 and, in particular, the statement that excluding the increase from the baseline would “lead to similar results”. “Similar” might be a subjective term, but my guess would be that excluding ACA would substantially change the “tax cut” the TPC reports the plan gives to the highest echelon taxpayers.

  14. comment number 14 by: Vivian Darkbloom

    I’m trying to figure out how, under the TPC analysis, the top echelon is getting a 4.1 percent tax cut that is “disproportionate” to other echelons. Steve’s comment above is a useful start. My list of possible explanations would be this:

    1. While the “rich” do not get a rate cut on LTCG’s and qualified dividends, they presumably get a 20 percent cut on ordinary interest, STCG’s, royalties, rents and other types of “ordinary” investment income. This does have an effect on proportionality, but I doubt it accounts for much of the 4.1 percent and the actual reduction for qualified dividends and LTCG’s for the “non-rich” should, to some extent, offset any distributional advantage to the “rich”;

    2. Elimination of the AMT. To Steve’s point, this is more a middle- and upper-middle income item. Besides, and perhaps AMTBuff can confirm, elimination of “tax expenditures” largely obviates the need for an AMT in the first place;

    3. Estate tax elimination has some effect; however, there is the issue of who bears the tax. I’m willing to go along with allocating it to the decedent if only because those who advocate abolishing it largely do the same;

    4. Reducing the corporate tax was not part of the TPC’s analysis so it’s a red herring;

    5. The “rich” are not affected as much by the elimination of deductions because the deductions they currently do take constitute a smaller percentage of their income than for other echelons (here Figure 2 is very useful and somewhat supports Mom’s comment in the penultimate paragraph of her article).

    5. Effect of the ACA reversal. I’ve got to think this has an effect, and not a minor one.

  15. comment number 15 by: SteveinCH

    Vivian,

    A couple of things. The bulk of the 4.1% is going to come from the 20 percent ordinary income reduction and the elimination of the ACA taxes as well as Pease/Pence. But much of that would apply to the rates of others as well.

    No the big issue, as I pointed out to Diane in my first post is that eliminating “real” tax expenditures (that is not counting capital preferences) is inherently less progressive than the current tax code. What I mean by that is that the share of even the most “regressive” tax expenditures that accrues to the top 1 or 2% is lower than their current share of tax rates.

    Thus, any revenue neutral tax reform that uses proportional rate reduction and the elimination of tax expenditures is, of a mathematical necessity, going to create a less progressive tax code. But this isn’t because of the changes in the rate code, it is because of the composition of tax expenditures. Said differently, tax expenditures are “more progressive” than the current rate code. Thus, their elimination makes the code less progressive.

    This is why Diane and other left of center folks don’t call for the elimination of tax expenditures but rather for capping them. They’ve done the math and have decided to sacrifice simplicity and horizontal equity (which would be attained by elimination of tax expenditures) to progressivity. To me, this is a very enlightening choice. It demonstrates priorities, not priorities I share but priorities nonetheless.

    I did some math on this a while back which you can find here.

    http://uspoliticaleconomics.blogspot.com/2011/07/some-truth-on-tax-expenditure.html

  16. comment number 16 by: Vivian Darkbloom

    Steve,

    Thanks for the reply. I guess that I should have been more clear that I was concentrating not so much on the minus 4.1 percent as such, but on the reasons why that percent reduction would be higher than for the other cohorts. The 20 percent reduction is neutral, as you pointed out. I would here amend my point 1 which suggests the rich get a proportionately greater break on ordinary investment income—they do in the sense that they derive more of that sort income, but that in itself should not skew the overall result because, e.g., a rich person who gets all his income from ordinary interest is not getting a proportionately greater break than one who gets all his income from salary. I would also add this to the list:

    6. The “rich” (appear to) get a proportionately greater tax break than the lowest echelon(s) because a 20 percent reduction of something is more than a 20 percent reduction of nothing (unless one *increases* refundable credits).

    I think we agree on the other reasons, except that in my humble view the explanation give in my point 5 is somewhat easier (for me, at least) to follow than your latest. The figures on your July 2011 post look a lot like those of the TPC in this regard.

    Pease/PEP is something I had not thought about, but it is an important baseline issue. Since the TPC assumes continuation of the 2001/2003 tax cuts, I think the baseline should assume those phaseouts don’t apply.

    As we’ve noted many times here before, the choice and composition of the baseline is everything and this is no less true than when looking at distribution.

    One might also argue, as is frequently done here and at the TPC, that eliminating those “tax expenditures” is not a “tax increase” at all, but a *spending cut*. On this point, some folks tend to agree with Grover Norquist, but only when it is convenient to do so. But, I think we’d better not go there.

  17. comment number 17 by: SteveinCH

    Vivian,

    I agree, your point 5 is a simpler explanation than my post but I like using numbers and the numbers on incidence are more readily available.

  18. comment number 18 by: B Davis

    Economistmom quoted the following from pages 2-3 of the TPC paper:

    This plan would extend the 2001-03 tax cuts, reduce individual income tax rates by 20 percent, eliminate taxation of investment income of most taxpayers (including individuals earning less than $100,000, and married couples earning less than $200,000), eliminate the estate tax, reduce the corporate income tax rate, and repeal the alternative minimum tax (AMT) and the high-income taxes enacted in 2010’s health-reform legislation.

    That’s what I find so depressing about the Romney plan. Like so many politicians before him, he’s very specific in spelling out all of the goodies that he’s promising voters. But when it comes to describing the deductions that he would cut to pay for the goodies, his crystal ball goes cloudy. I found it interesting how this was defended by Scott Hodge of the Tax Foundation on Thursday’s PBS Newshour as follows:

    There are many ways in which Romney could fill out the details of his plan. They of course are not forthcoming with that, because they would like to keep to a big-picture approach.

    Funny, Romney wasn’t taking much a “big-picture approach” to spelling out the tax cuts! Of course, this will largely lock him into pushing the specific tax cuts that he’s proposed but provide him with no roadmap or mandate for cutting deductions. As a result, the cuts in deductions will never take place and our deficit will just grow that much more. In any case, Bill Gale of the Tax Policy Center said the following regarding their study:

    We did a very straightforward exercise. We said, Governor Romney wants to cut rates by 20 percent. He doesn’t want to raise the rate on capital gains or dividends or other saving investments. But he wants his reform to be revenue-neutral.

    That means you have to raise the revenue somewhere else. We took the most optimistic way, the most progressive way to raise that revenue. And we showed that, even under those circumstances, there would be a big tax cut for high-income households and a tax increase for middle-income households.

    Regarding the TPC study, I largely agreed with what Krugman said on his blog:

    1. Neither candidate is offering a realistic tax plan, because the fact is that the federal government is going to need more revenue than either is currently proposing. But the two men are not equivalent in their unrealism: Obama is proposing to raise revenue by around $80 billion a year compared with current policy, while Romney is proposing to cut revenue by around $450 billion a year compared with current policy. Obama is inadequate; Romney is intensely, screamingly irresponsible.

    That was the first of three good points that Krugman made at the above link. In the second, he says that Romney is “scamming voters” in claiming that he can make up the lost revenue without shifting the tax burden onto the middle class. In the third, he points out that the Romney campaign isn’t even trying to make a substantive argument against the study, something that Bill Gale also said in the Newshour interview.

  19. comment number 19 by: Steveinch

    I don’t know why anyone reads Krugman anymore much less quotes him. Krugman’s first and second points are inherently contradictory. His first point assumes there will beno change in tax expenditures and is inconsistent with the TpC analysis. His second assumes tax expenditures will change and makes the same point as the TPC.

    And, of course as I have shown before, one doesn’t need to increase tax rates or reduce tax expenditures. Nor does one need to cut spending, one simply needs to constrain the rate of growth of spending.

    That said, Ryan would have been better off saying nothing about taxes other than the need for revenue neutral reform and Romney would be well advised to retreat to the same position. Then the difference in plans is $80 billion per year or effectively nothing

  20. comment number 20 by: B Davis

    Steveinch wrote:

    And, of course as I have shown before, one doesn’t need to increase tax rates or reduce tax expenditures. Nor does one need to cut spending, one simply needs to constrain the rate of growth of spending.

    That may be. But to quote the old political cliche, “when you find yourself in a hole, the first thing to do is to stop digging”! As the TPC paper stated, Romney’s plan would “extend the 2001-03 tax cuts, reduce individual income tax rates by 20 percent, eliminate taxation of investment income of most taxpayers (including individuals earning less than $100,000, and married couples earning less than $200,000), eliminate the estate tax, reduce the corporate income tax rate, and repeal the alternative minimum tax (AMT) and the high-income taxes enacted in 2010’s health-reform legislation”. Every analysis I’ve seen calculates that these tax cuts will decrease revenue necessitating that the rate of growth of spending be cut that much more. Why can’t Republicans candidates at least stop digging!

  21. comment number 21 by: Steveinch

    Then you aren’t looking very hard. The plan says it will be revenue neutral versus the current policy baseline. Which means there isn’t really a bigger hole than say what the President has suggested.

    Any larger numbers come from one of two things, either using the current law baseline or assuming loopholes won’t be closed to make the plan revenue neutral vs the current policy baseline.

  22. comment number 22 by: AMTbuff

    This is why Diane and other left of center folks don’t call for the elimination of tax expenditures but rather for capping them. They’ve done the math and have decided to sacrifice simplicity and horizontal equity (which would be attained by elimination of tax expenditures) to progressivity.

    The problem with worshiping progressivity is that progressivity eventually confronts elasticity. 90% tax rates won’t collect much actual revenue.

    We are at or near the point where progressivity cannot be maintained while increasing revenue from the rich, whose reported taxable income is highly elastic.

    Either progressivity or revenue from the rich will need to drop. Ironically the latter would allow progressives to applaud decreased income inequality, based incorrectly on reported taxable income rather than true economic income. That would be a political win for them at the expense of taxpayers, tax consumers, and economic health and growth.

  23. comment number 23 by: Ben

    My problem with the tax calculator is this:

    Put in 197,499 and then 197,500. Look at the difference. The results for Romney are wildly different and even the results under the two obama plans are far too different. That one dollar difference isn’t going to skew actual taxes that much.

  24. comment number 24 by: Ben

    sorry, i scrolled down too far and commented under the wrong post. you might want to consider putting more space in your blog between articles. it all blends together.