The math doesn’t work. Does too. Does not.
That’s my somewhat condensed summary of the great tax debate so far in this campaign. Despite his “Tax cut? Who said anything about a tax cut?” routine, Mitt Romney very clearly has proposed a tax cut that cuts federal income tax rates by 20% and thus costs the Treasury $5 trillion in revenue over 10 years compared to current tax policies. Romney and Paul Ryan claim they can offset the revenue loss with as-of-yet unspecified closures of tax deductions and loopholes. And they claim that “six studies” support his claim. But as I’ll show in a moment, the math really doesn’t work, and the six studies, as Josh Barro notes, don’t support Mitt and Paul’s plan.
So far, Romney has been able to get by on evasions. And since the final debate next week is on foreign policy, tomorrow’s town-hall forum may be the last chance to demand some straight answers on the subject.
First, the math. You ready?
In 2015, according to the Tax Policy Center (TPC), taxpayers making more than $200,000 would pay about $250 billion less. Current tax expenditures benefiting that group—excluding the ones Romney’s already ruled out ending–total about $160 billion, so even if he ended all of those, he’d still have to make up about $90 billion. That difference would either have to be paid for by the “middle class”—anyone with income less than $200K—or added to the deficit.
What about the six studies? For the details, read Barro’s excellent post, but the punch-line is that to make the math work, you either have to close tax expenditures for households starting at $100,000 instead of $200,000 (which Romney has said he won’t do) or you have to assume big, supply-side growth effects.
That’s exactly the fantasy that got us into this deficit mess in the first place. See here for the role of the similarly sold Bush tax cuts in today’s deficit projections. In fact, it’s precisely these types of promises that have led to structural budget deficits (that’s the kind you don’t want—the kind that grow during expansions, as opposed to recessions) since Reagan.
Don’t they say that trying the same thing and expecting a different result the definition of insanity?
The other studies try to wiggle out of the arithmetic by adding in expenditure cuts that the TPC allegedly left out. But as Barro shows, even when you plug them back in, they don’t make up the difference. And at least one of the supposed new revenue sources is already in the TPC calculation (they include “carryover basis” as a base-broadening revenue source in their numbers above; the Heritage study gets this wrong).
Math aside, the bigger problem is Romney/Ryan’s refusal to name even one tax expenditure that they would close to offset their revenue losses. Our recent history with big tax cuts that will be paid for either by a player base-broadener to be named later or by miraculously faster growth suggests that what you really end up with here is the big tax cut, larger budget deficits, and greater after-tax income inequality.
Romney/Ryan say that they can’t reveal their secret “pay-fors” because they plan to negotiate them later with Congress and it will mess up the deal if they enumerate them now. Huh? Almost every Republican in Congress has signed a pledge never to raise taxes, so why should we believe they’ll change their tune on this after their guys are elected? In this climate, the idea that there’ll be a big Kumbayah moment that will lead the next Congress to find $5 trillion in new tax revenues to pay for Mitt’s new cuts is too implausible for words. Really, how freakin’ gullible do these guys think we are? Still, the biggest problem of all here—one that hardly gets any attention at all—is this: Does America really need another huge tax cut on top of making the Bush one permanent? Trickle-down tax cuts haven’t worked at all in the past—why should doubling down on them work now? To the contrary, should we not be looking at ways to eventually, once the economy is solidly back on track, raise the revenue we need (along with spending cuts) to achieve a sustainable budget path and ensure an amply funded government? Outside of committed supply-siders who are impervious to evidence and some of the wealthiest among us who will be the largest beneficiaries, does anyone really believe that this is the way forward? OK, starting with the gullibility one, that’s a lot of rhetorical questions. So here are the answers: Really gullible, of course not, they won’t, absolutely, I certainly hope not. But here’s hoping some similar questions get put to Romney himself Tuesday night.
Jared Bernstein was chair of President Joe Biden's Council of Economic Advisers. Recommended
