Don't Hold Your Breath for a Romney Budget that Makes Sense

If you missed it, Mitt Romney gave a long interview to CNN Money in which he explained his plans for dealing with taxes, cutting the budget, and juicing the economy. The interview is boilerplate Romney—vague declarations about policies he won’t detail—but he does comment on the recent analysis from the nonpartisan Tax Policy Center (TPC). In short, the Center found that Romney’s goal—across-the-board tax cuts that don’t affect revenue—is impossible without raising taxes on most Americans. Romney calls this a “garbage conclusion”:

I indicated as I announced my tax plan that the key principles included the following. First, that high-income people would continue to pay the same share of the tax burden that they do today. And second, that there would be a reduction in taxes paid by middle-income taxpayers. Those are the key principles of my plan that the Tax Policy Center chose to ignore. Instead they made various assumptions about what they thought I would do which are not in fact accurate.

They made an assumption that I would reduce the home mortgage-interest deduction. I will not do that for middle-income taxpayers, as I have already indicated. There’s an old expression in the computer world: garbage in, garbage out. They made garbage assumptions and they reached a garbage conclusion. My tax policy will continue to have a very clear direction. We are not going reduce the share of taxes paid by high-income individuals, and we’re certainly not going to increase the taxes paid by middle-income taxpayers.

It suffices to say that this is a harsh critique of the TPC analysis. Curious about what they had to say for themselves, I spoke to Robeton Williams, a senior fellow at the Center, who defended the study, and noted the extent to which their conclusions are the direct result of Romney’s vagueness. “He says it’s garbage, and his campaign has called the analysis a joke,” Williams says. “But if he wants to do what he’s doing, he is stuck with raising taxes on middle- and lower-income households, and cutting them on the rich.”

The math, Williams explains, is straightforward: “Mitt Romney has explicitly said that he would cut all rates by 20 percent, and extend the Bush tax cuts. He says he would preserve and enhance tax incentives for savings, and he says he would get rid of the alternative minimum tax and the estate tax.” Moreover, Romney says that this plan is revenue neutral—the government would neither gain nor lose funds—and just as progressive as the current system—no group sees a higher or lower tax burden.

Even under the most favorable assumptions, the only way to satisfy these conditions is to raise taxes on ordinary Americans. Otherwise, you’ll have to tolerate huge deficits—which would break Romney’s promise to balance the budget—or implement massive spending cuts. And even there, Romney is vague and noncommittal; when asked how he would cut the budget, the Republican nominee named cuts to Amtrak, PBS, the National Endowment for the Arts, and the National Endowment for the Humanities, as well as repeal of Obamacare and cuts to the federal workforce.

The Washington Post’s Suzy Khimm ran the numbers and found that, at most—assuming full savings from cutting the workforce and reducing pay and benefits—this would save about $34 billion per year. In total, this saves more than $300 billion over the next ten years, until you add in repeal of the Affordable Care Act. Remember, because of its tax increases, the ACA reduces the deficit by $109 billion over the next decade. Together, Khimm says, the federal government would save $211 billion over the next decade—or 2 percent of what it needs to for Romney’s $9.6 trillion in tax cuts.

Williams says that the Center is willing to run the numbers on Romney’s budget again, but first it needs more detail from the Romney campaign. “If he intends to do something different, tell us what it is, and we’ll be happy to include it in a new analysis.”

I wouldn’t hold my breath.

Comments

The study is based on the meager specific data available about Mitt's master budget plan. In other words, Romney's budget proposals are garbage, and as they say:

Garbage in, garbage out.

From Ryanomics to Romneyomics and Beyond Job Killing Payroll Taxes

The payroll taxes could be replaced with a 2% tax on net wealth (excluding $15,000 cash and retirement funds). University of Chicago Economics Professor, Casey Mulligan, estimated in September 2011 that each, “percentage-point reduction in employers’ [payroll] costs raises employment by about a percentage point and real gross domestic product by about 0.7 percentage points”. Would Democrats like Mr. Obama oppose the tax? Would Republicans like Mr. Romney oppose the tax if it also meant that the income tax rate could be reduced to 8% and capital gains and estate taxes could be eliminated? Might both Democrats and Republicans agree that a matching 8% corporate income tax rate (down from 35%) and 4% VAT is business tax perfection? The answers are not simple and must be decided on facts.

Beginning with business tax reform, the 8% income tax rate is made possible by the 4% VAT -a tax used by every developed country except the U.S. Reducing the corporate rate would enable the return of several trillion dollars of tax deferred foreign profits. The low rate is also the only feasible political tradeoff for the elimination of all business tax expenditures (“loopholes”).

The obvious appeal of the individual tax reform includes: low 8% income tax rate (Republican), new broad tax base for Social Security and Medicare (Republican & Democratic), millions of new jobs with no government spending (Republican & Democratic), same low 2% net wealth tax & 8% income tax rates paid by rich and poor with no loopholes (Conservative), corrects the unintended wealth transfer of the current tax code (Socialist), improved upward economic mobility (Democratic), net wealth tax offset for debt such as mortgage, student loan, car loan, credit card, etc. (Libertarian), the blend of taxes would generate at least $500 billion more in tax revenue (but could easily be made revenue neutral). Now ignore the silly partisan labels.

The obvious hesitations about this tax reform include: the VAT is for Europe, Mexico and Canada (but see VAT supporter, Paul Ryan’s 2010 “Roadmap for America’s Future”), the net wealth tax is Un-American (see net wealth tax supporter, Donald Trump’s 2000 “The America We Deserve”), no politician has the guts to radically innovate by joining divergent ideas and ideologies (but see Bain Capital, Romney Care, Salt Lake City, Trump & Ryan), some very wealthy taxpayers may pay more (if you are very wealthy and can’t make money with an 8% income tax and no capital gains you deserve to pay more).

Let us know at TaxNetWealth.com if you can identify a logical, legal or economic reason why this 2-4-8 Tax Blend would not produce a sustainable economic recovery as promised. Otherwise, let your representatives in Washington know that you expect them to support bold tax reform or die trying by simply forwarding a copy of this comment.

Eugene Patrick Devany, JD, MPA

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