From our partners at The Agonist
Earlier today, Steve Hynd wrote about the comments made on CNN by Mark Zandi — former economic adviser to Sen. John McCain in his 2008 campaign, and currently Moody’s Chief Economist. Here, to reiterate, is the relevant portion of the CNN transcript plus video (at the link), provided by Annie-Rose Strasser at Think Progress (emphasis is in the original):
ZANDI: Yeah, I think the Tax Policy Center study is the definitive study. They’re non-partisan, they’re very good. They say given the numbers that they’ve been provided by the Romney campaign, no, it will not add up. Now, the Romney campaign could adjust their plan. They could say okay I’m not going to lower tax rates as much as I’m saying right now and they could make the arithmetic work. But under the current plan, with the current numbers, no it doesn’t. I’ll say one other thing, though. I think it is important that we do focus on the so-called tax expenditures in the tax code. Those are the deductions, and credits, and loopholes in the code. We need to reduce those, because if we do we’re going to make the tax system fairer, easier to understand and ultimately lead to stronger growth. So that’s the right place to focus. But, no, the arithmetic doesn’t work as it is right now.
To add to this, David Dayen tells us about another organization that has run the numbers and concluded that Romney’s tax plan is a fairy tale:
The Joint Committee on Taxation, the “CBO for taxes” as it were, the nonpartisan scorekeeper on tax policy, just released a reportthat should end all discussion about the Romney campaign’s plans for a deficit-neutral 20% across-the-board rate cut.
Repealing all itemized deductions in the U.S. tax code would pay for only a 4 percent cut in income tax rates, according to an estimate from the nonpartisan scorekeeper for Congress that casts doubt on Republicans’ ability to finance lower income-tax rates with base broadening.
The analysis by the Joint Committee on Taxation shows the arithmetical difficulty of an approach that assumes long-favored tax breaks such as deductions for mortgage interest and charitable contributions could be repealed instantly and completely. Republican presidential nominee Mitt Romney proposes a 20 percent income-tax cut and says he would pay for it by limiting tax deductions, credits and exemptions.
There are some important differences between Romney’s approach and the JCT analysis that make it difficult to compare the 4 percent finding in the study with Romney’s promise of a 20 percent tax cut. Much of the base broadening in the analysis pays for some changes that Romney assumes in his starting point and for policies from the 2009 stimulus law that he may not want to extend. That means he would able to use the changes to deductions to cut rates by more than 4 percent.
And then there’s Josh Barro’s analysis at Bloomberg, in which Barro writes that the three assumptions Romney has made in his plan cannot all work:
Mitt Romney’s tax plan has three key planks. He cuts personal income tax rates by 20 percent across the board; he eliminates deductions, exclusions and credits so that the deficit does not grow; and he doesn’t make the tax code any less progressive. Unfortunately, as the Tax Policy Center has shown, only two of these planks can co-exist.
Conservatives have reacted aggressively against the TPC report. It seems that Mitt’s plan should be viable: If you cut tax rates proportionally across the board, and eliminate tax deductions proportionally, it seems progressivity should be unchanged. In fact, if you eliminate tax breaks starting with the wealthy, as Romney says he would, it seems he should be able to make the tax code even more progressive.
The idea is intuitive, but wrong. And it’s wrong because of something people don’t realize: The tax preferences that exist today overwhelmingly benefit people with lower and middle incomes, not the wealthy. While tax rate cuts reduce income tax burdens proportionally, as TPC notes, there aren’t enough tax preferences for wealthy people to offset Romney’s cuts at the top.
To understand this, we can look at the IRS Statistics of Income report for 2009, the most recent year available. Tax returns reporting less than $200,000 of adjusted gross income (AGI) accounted for a total AGI of $5.86 trillion, and taxable income of $3.24 trillion. That is, deductions and exemptions amounted to 45 percent of adjusted gross income for people making under $200,000.
Tax returns with more than $200,000 of AGI (the highest-earning 2.8 percent of filers) had a total of $1.96 trillion in AGI and $1.62 trillion in taxable income. For this high-income group, deductions and exemptions were just 18 percent of adjusted gross income.
Put another way, filers with over $200,000 of income earned 26 percent of all personal income in 2009, but received only 12 percent of tax exemptions and deductions.
If you think about it, this makes sense: Everyone gets the same $3,800 personal exemption ($3,650 in 2009). That amount shrinks as a share of your income the wealthier you get. Other deductions grow with income, but generally not as fast as your income; wealthier people have bigger mortgages, but you can only use so much real estate. The Alternative Minimum Tax also eats away at the value of deductions and exemptions for some people with high incomes.
These statistics actually understate the extent to which tax preferences (at least those put on the table by Romney) favor low- and middle-income Americans. The statistics don’t include the tax exclusion for employer-provided health insurance, which shields a larger share of income from tax for middle-income people than for upper-income people. And they don’t account for the value of tax credits, which disproportionately benefit the poor and middle class.
There is a large tax preference for the wealthy that does not show up in these statistics: the preferential tax rate on capital gain on dividend income. But Romney has specifically taken that off the table as a means of raising revenue. (For good reason, in my opinion, but it makes the rest of his math impossible.)
That’s why Romney can’t find enough tax preferences to offset his across-the- board rate cut — unless he raises taxes on earners making under $200,000. That’s not to say we shouldn’t reduce tax preferences. It is to say that we shouldn’t look to their elimination as a way to cut tax rates by 20 percent.
The Romney camp vehemently disputed Barro’s analysis with the claim that “six studies” showed the plan could work. Paul Ryan used this claim in Thursday’s vice-presidential debate (after telling Chris Wallace on Fox News that he didn’t have the time to explain the math behind the plan). Matthew O’Brien at The Atlantic went through each of those “studies” in detail, as did Josh Barro and, not surprisingly, they turn out to be pretty weak tea:
Mitt Romney‘s campaign says I’m full of it. I said Romney’s tax plan is mathematically impossible: he can’t simultaneously keep his pledges to cut tax rates 20 percent and repeal the estate tax and alternative minimum tax; broaden the tax base enough to avoid growing the deficit; and not raise taxes on the middle class. They say they have six independent studies — six! — that “have confirmed the soundness of the Governor’s tax plan,” and so I should stop whining. Let’s take a tour of those studies and see how they measure up.
The Romney campaign sent over a list of the studies, but they are perhaps more accurately described as “analyses,” since four of them are blog posts or op-eds. I’m not hating — I blog for a living — but I don’t generally describe my posts as “studies.”
None of the analyses do what Romney’s campaign says: show that his tax plan is sound. …
I’ll let you go to the link for the itemization.
Let it be noted that it is the abject refusal of the Romney/Ryan campaign and its supporters to engage with this Mount Everest of evidence accumulated through long hours of sifting through the actual numbers by scores of top economists both in and out of government that explains why Joe Biden couldn’t stop smiling, grinning, laughing, and shaking his head as Paul Ryan doubled (tripled? quadrupled?) down on insisting that two plus two can be made to equal five. And instead of endlessly whining and complaining about how “rude” and “obnoxious” and “un-presidential” Biden’s debate presentation was, and how outrageously Martha Raddatz supposedly “let Biden get away” with his “constant interruptions,” Romney/Ryan boosters should come up with at least one credible argument for how it’s possible to cut taxes across the board by 20% by eliminating loopholes and deductions for the wealthy alone, without shredding the social safety net, without adding to the deficit, and without shifting the tax burden onto Americans who are middle class by Romney’s definition (under $250,000 yearly income).
But of course they can’t do that. Instead, we get fatuous, foolish arguments that defy common sense and insult everyone who can lay claim to even average intelligence (emphasis is in the original):
Asking us to accept what will happen under a Romney tax plan relies on said tax plan actually being enacted. And a President Romney could not put such a plan in place quickly nor single handed. Congress will have control of that process, and we all know how lightning fast and efficiently that crack team works.
No, the one thing which could make this math work even before any changes are made to the tax code is the simple fact of Mitt Romney being declared the winner of the election next month. Yes, I understand that this argument sounds just like claims that the election of Barack Obama would slow the rise of the oceans, etc. etc. etc. But there’s a difference here. The relative sea level of the planet doesn’t have access to the internet or cable news and acts independently of current events. But businesses around the country have, beyond question, been holding their collective breath in response to the advent of regulatory burdens and the coming toll of Obamacare, leading to stagnation in employment and economic growth. Taking away that threat – which will be the implication of changing White House occupants – could absolutely bring a bunch of capital in off the sideline. And the energy industry – which has been effectively stymied in some sectors – could, by most projections, start putting millions of more people to work in a matter of months once work on the pipeline gets into full gear and the issuing of more exploration permits is on the horizon. Those two factors alone could produce the type of economic growth which would already be more quickly filing government coffers before the tax reform debate even begins.
That’s the sort of change which will make enacting these types of comprehensive tax reform possible. If you’re arguing from a position of strength, with unemployment falling and more cash coming in to the treasury, it’s a heck of a lot easier than if you have to rely on murky projections of what “might happen” later. …
Ah yes, those “murky projections”: Such a drag to expect the Romney/Ryan ticket to take responsibility for the accuracy of their statements! So unreasonable to ask them to provide enough details about their promises so that voters can determine if they’re even possible to keep!
Just trust us, baby.