Tax Policy Center Says Romney's Math Does Not Add Up

[LarianLeQuella]

http://www.electoral-vote.com/evp2012/Pres/Maps/Oct18.html#item-2

The nonpartisan Tax Policy Center, which Mitt Romney repeatedly cited as a neutral authority during the primaries, has now analyzed Romney's tax plan and the numbers don't add up. Romney is proposing to cut individual rates by 20%, cut the corporate rate from 35% to 25%, end the estate tax, end the alternative minimum tax, and eliminate the capital gains tax on people earning less than $250,000. He has promised to do this without increasing the tax burden on the wealthy or middle class and without increasing the deficit.

Here are the numbers. The tax reductions will cost the government $5 trillion in lost revenue over 10 years. However, eliminating all itemized deductions will generate only $2 trillion in new revenue, leaving a gap of $3 trillion. If individual deductions are not eliminated but only capped at $25,000, as Romney has proposed,, the amount of revenue raised is only $1.3 trillion. In other words, Romney cannot reduce the rates and eliminate deductions and still be revenue neutral. Even getting rid of all deductions does not generate enough revenue to make up for the rate cuts, so the deficit will balloon as a result.

I'm sure he can put on his magic underwear and use magic to make it all work out...

 

[elbe]

I think you're forgetting one important fact: They said it was revenue neutral.

What more do you need?

 

[Puppycow]

Indeed.

No free lunch. The laws of arithmetic have not been repealed.

Shocking.

 

[TellyKNeasuss]

What does it matter? In 2000, George Bush promised to use the surplus to shore up Social Security and to use the exact same surplus to finance a tax cut. How many people didn't vote for him because his numbers didn't add up?

What's worse is that at the second debate Romney said that he would give the middle class a tax break. Obviously there's no way to give one group a tax break and still collect the same amount of revenue unless taxes on another group are raised.

 

[JoeTheJuggler]

I think you're forgetting one important fact: They said it was revenue neutral.

What more do you need?

But in the moving target that is the Romney-Ryan platform, that claim has been abandoned for some time now. Now he claims it will bring in enough revenue to fund a smaller government.

They've also abandoned the proposal to overhaul the tax code and make it much simpler, and I think they've abandoned the proposal to make the tax flatter by making fewer brackets.

All I see now in the 5 point proposals are 4 points that would decrease taxes and one point that would be revenue neutral but for the fact that it's contradicted by the very next point.

They are:

Across the board 20% cut in tax rates

Leave capital gains rate where it is

Reduce capital gains, dividend and interest tax rates to 0% for people with AGI $200K or under

Eliminate AMT

Eliminate inheritance tax

 

[pgwenthold]

But in the moving target that is the Romney-Ryan platform, that claim has been abandoned for some time now. Now he claims it will bring in enough revenue to fund a smaller government.

I think this is really significant. Recall Ryan's interview with Chris Wallace where he kept asserting, over and over, how it's revenue neutral, even though he couldn't explain how. Now, quietly, they have abandoned the whole argument?

Amazing.

 

[Brown]

No free lunch. The laws of arithmetic have not been repealed.

Shocking.

More to the point: Mathematics are not a matter of opinion.

If your view is that one trillion plus two trillion equals five trillion, that view is entitled to no deference or respect at all. I don't care how many times you say it, nor do I care how many butt-smooching "studies" you claim to have that say you're right. You deserve no consideration for that view, and you certainly do not merit any praise for it, even if the end result is one we all wish were correct.

 

[SkepticalDrew]

But if Romney gets elected everyone gets a pony. I want a pony.

 

[JoeTheJuggler]

I think this is really significant. Recall Ryan's interview with Chris Wallace where he kept asserting, over and over, how it's revenue neutral, even though he couldn't explain how. Now, quietly, they have abandoned the whole argument?

Amazing.

Yep. Even his website changed.

It now reads, "To repair the nation’s tax code, marginal rates must be brought down to stimulate entrepreneurship, job creation, and investment, while still raising the revenue needed to fund a smaller, smarter, simpler government."

In last night's debate he seemed willing to defend as his proposal nothing beyond the 5 Points. Fine--then let him defend a $5 trillion tax cut. In the first debate, he denied vehemently that he proposed any kind of tax cut, but that's all there is in his 5 Point proposal: tax cuts.

 

[JoeTheJuggler]

Nevermind.

 

[LarianLeQuella]

If your view is that one trillion plus two trillion equals five trillion,

For very large values of one and two, you can get five.


Seems to be the type of numbers they are working with.

 

[JoeTheJuggler]

In last night's debate he seemed willing to defend as his proposal nothing beyond the 5 Points. Fine--then let him defend a $5 trillion tax cut. In the first debate, he denied vehemently that he proposed any kind of tax cut, but that's all there is in his 5 Point proposal: tax cuts.

Even if he's not willing to specify any numbers other than the 20% rate cuts, we know for sure that adding up a series of negative numbers will not result in zero.

 

[Almo]

His claim is that by cutting taxes, growth will be stimulated, and the net revenue will stay the same or go up, or at least not go down so much as to underfund the smaller government he wants.

I don't buy it, but it's not as obvious as 1 + 2 = 5.

 

[pgwenthold]

There was an episode of Family Guy where Lois is running for mayor, and she is debating Adam West. She discovers during the debate that all she has to do is to say "9-11" and the crowd cheers, despite the fact that it has nothing to do with anything.

This is how Romney is using "tax cuts." All he has to do is say "tax cuts" and everyone cheers, regardless of any context at all.

The fact that he can completely change it from being revenue neutral or simplifying the tax code just shows that none of that matters to his supporters. All the care to hear is "tax cuts."

I understand that everyone likes tax cuts, I really do. We all want to pay less in taxes. But at some point, don't you have to say, we have to do our part? Let's cut spending, ok, I'm for it. And if we do that, then we don't need to pay as much in taxes. Even better. But let's not jump the gun. Hasn't history shown us clearly enough that spending cuts needed to offset tax cuts never materialize?

 

[Meadmaker]

And, don't forget, it's even worse than it appears. The TPC analysis is based on eliminating every deduction, not every deduction for the rich, and not every deduction above a certain threshold.

Most of the deductions are middle class deductions, so if Romney is to be believed that he won't be touching those.......

Oh who cares about "if Romney is to be believed". It's kind of like "if pigs were to fly."

 

[JoeTheJuggler]

This is how Romney is using "tax cuts." All he has to do is say "tax cuts" and everyone cheers, regardless of any context at all.

But worse, whenever he's questioned about the consequences of cutting taxes, he denies that he's cutting taxes, as in the first debate.

 

[theprestige]

I know this is probably naive, but when I hear about the "math", I imagine something like this:

1. Write down all the federal tax exemptions, credits, etc.
2. Calculate the revenue "lost" to people claiming those exemptions, etc.
3. Calculate the revenue "lost" if the base tax rate is reduced by 20% (or whatever).
4. Compare 2 and 3, and see how close they are to each other.

Is that about right?

 

[JoeTheJuggler]

I know this is probably naive, but when I hear about the "math", I imagine something like this:

1. Write down all the federal tax exemptions, credits, etc.
2. Calculate the revenue "lost" to people claiming those exemptions, etc.
3. Calculate the revenue "lost" if the base tax rate is reduced by 20% (or whatever).
4. Compare 2 and 3, and see how close they are to each other.

Is that about right?

Not really. Romney isn't proposing to eliminate all exemptions, credits, etc. If so, let him say so and defend it politically. The nearest he came was the suggestion that one possibility we could discuss (after he is elected) would be a $17K* cap in deductions--which comes nowhere near the same as total elimination of all exemptions, credits, and deduc.tions.

And he is proposing an across the board 20% rate cut (not "whatever") plus elimination of capital gains, dividend and interest taxes for anyone with AGI of $200K or under, plus elimination of the AMT, plus elimination of the inheritance tax.

But the Tax Policy Center was being generous and tried it the way you suggest (see the quote in the OP), and it resulted in making up only $2 trillion of the $5 trillion in lost revenue. They pointed out it would be worse with just the deduction cap that Romney hasn't quite actually proposed.

*ETA: I hadn't heard the $25K cap which is what the Tax Policy Center used. I assume Romney made the same non-proposal sort of suggestion with different figures at different times. The language he used though made it obvious that he was not willing to incorporate this into his tax proposal yet. (And again during last night's debate where he only wanted to discuss his 5 Point plan, which is all tax cuts.) He and Ryan have both indicated that closing "loopholes" to offset the revenue loss is something they want debated only after they are elected.

ETA: I may have missed your point. If you're suggesting they didn't take into account optimistic growth estimates, you would be mistaken. From the TPC: "

We accounted for revenue feedback coming from potential economic growth estimates as estimated by Romney advisor Greg Mankiw. We even ignored the need to finance about a trillion dollars in Romney's proposed corporate cuts.

Our conclusion was not a prediction about [what] Governor Romney would do as President, it was an arithmetic calculation: all of the promises couldn't be met simultaneously without resorting to tax increases on households with income below $200,000.

Link.

 

[JoeTheJuggler]

His claim is that by cutting taxes, growth will be stimulated,

But that's circular reasoning. How do you stimulate growth without adding to the deficit? Well you assume that the economy will grow enough to offset the revenue lost by these tax cuts.

In fact, shrinking the government (something he is now proposing since he has abandoned the "revenue neutral" claim) substantially would actually shrink the economy.

 

[fishbob]

It appears to me that federal tax cuts over the last 20 years may have resulted in the increased state and local taxes. Especially those most regressive sales taxes, and the horribly unpopular property taxes.

There's no free lunch, gotta pay for roads, fire, cops somehow. The tax burden has just been pushed down to smaller governments, resulting in increased opportunities for fraud, waste, and inefficiency.