Tuesday, October 02, 2012
Ever since the Tax Policy Center exposed the plain fact that Romney's proposal to render a 20% cut in marginal income tax rates "revenue neutral" with unspecified tax loophole closures without raising taxes on the middle class is mathematically impossible, GOP apologists have taken serial attempts to square the circle and fill in the blanks that Romney refuses to fill in.
First, the Wall Street Journal editorial board attempted a laughable debunk, which relied mainly on assuming that the rate cut would stimulate fantastic growth rates-- the old voodoo economics assumption. As I pointed out at the time, the TPC had already granted Romney the most generous "dynamic scoring" (projections building in the assumption that the plan would spur growth) that any reality-based economist would grant.
Next, the respected Martin Feldstein weighed in, demonstrating that a tight cap on deductions for anyone earning over $100,000 per year would make a revenue-neutral 20% rate cap mathematically possible -- just barely, and again greasing the calculation with highly optimistic dynamic scoring assumptions. Such a cap would massively raise taxes on those earning $100-$200k per year -- and would be politically impossible, as Ezra Klein pointed out, in part because it would violate promises in the Republican National Platform. More to the point, Romney waved away the proffered aid by insisting that he would not raise taxes on anyone earning less than $200k per year.
Now, here cometh Alex Brill of the American Enterprise Institute, taking three more dubious whacks at TPC assumptions. First, recycling an AEI colleague's objection also bruited in the Wall Street Journal editorial, he questions TPC's interpretation of Romney's promise not to add new taxes on investment income, asserting that Romney could end the tax exemptions for municipal bonds and interest earned in life insurance policies. Right -- let's try to imagine Romney inducing Congress to make municipal bonds taxable and to eliminate tax breaks for life insurance benefits. It doesn't pass the laugh test -- the market appeal of both of those products depends on their tax free status - and so does the financing of municipalities and the existence of the savings-based life insurance industry. And while Romney has never said that he wouldn't close these loopholes per se, his sketchy 59-point economic plan promises to "Further Reduce Taxes on Savings and Investment." The whole point of TPC's exercise was to fill in blanks that Romney refuses to fill on the basis of his stated principles. Leaving municipal bonds and life insurance interest tax free is consistent with those principles; eliminating them isn't.
Next, Brill takes off the ledger Romney's elimination of the taxes imposed on high income taxpayers by the Affordable Care Act (a 0.9 percent surcharge on earned income and an additional 3.8 percent surcharge on investment income), on grounds that the effects of repealing the ACA should be scored separately. Right -- adding $100 billion to the deficit over the next 10 years, according to the CBO, and a trillion-plus over the next ten. This is nothing but an off-balance-sheet scoring gimmick.
Finally, having whacked away the bulk of the revenue gap exposed by TPC -- which began with the generous assumption that Romney would be able to max out on loophole closures for the wealthy -- Brill sprinkles "dynamic scoring" fairy dust over the fallacious edifice to wipe away the rest. In fact, TPC allowed, for the sake of argument, far more generous dynamic scoring than Brill reaches for to get over his finish line. But it isn't enough, unless you grant Brill's other fallacious assumptions. And even if you do grant all of them, they are caveats granted on top of a utopian premise that TPC granted for the sake of argument: that Romney would eliminate all tax expenditures for individuals earning more than $200k.
The whole argument is moot in any case. The massive loophole closures needed to make Romney's core propositions add up, weighted to fall as heavily as possible on top earners, will never happen. And all these mental gymnastics would be unnecessary, needless to say, if Romney would fulfill the basic requirements of credibility and specify what deductions he would reduce, and for whom. His evasiveness makes the defense a theological exercise, and one that shouldn't fool even the faithful.
Mitt Romney, taxer of muni bonds?
Why is Bowles-Simpson more progressive than Romney's "very similar" plan?