Mitt Romney plans a tax cut weighted to the wealthiest Americans which will cost $5 trillion. The nonpartisan Tax Policy Center studied Romney’s plans and found that, assuming he sticks to the promises he has made to pay for his plan, taxes on middle class Americans would go up by an average of $2,000 for a family with kids.
On Meet the Press, Governor Romney claimed that there are five studies that show his tax plans are possible without imposing a tax hike on middle class families. But, despite what Governor Romney says, no one has demonstrated that you can cut taxes by $5 trillion, favoring millionaires and billionaires, pay for it by closing loopholes, and avoid a middle-class tax increase—because you can’t. As President Clinton said, you can’t avoid arithmetic.
First, Romney has never denied that his plan explicitly raises taxes on 18 million working families by eliminating tax cuts the President passed for college and working families. Second, the Tax Policy Center has shown that much broader middle-class tax increases are necessary. That’s true even when they included the most favorable assumptions for Romney’s plan—for example, assuming that Romney is willing to get rid of deductions for high-income families that Romney has actually suggested he would keep like the charitable deduction. And finally, even the five studies Romney cites fail to back up Romney’s claims. Instead, they actually underscore the basic conclusion that middle-class tax increases are necessary to make his tax plan add up: For example, by showing how Romney’s plan “works” by including tax increases on families including two typical teachers or a police officer married to a nurse—or by simply ignoring some of Romney’s tax cuts.
Harvard Professor Martin Feldstein’s Study
Harvard professor Martin Feldstein wrote a Wall Street Journal op-ed that purported to show that it was possible to close enough tax deductions and loopholes for the wealthy to pay for Romney’s tax cuts. In fact, Feldstein’s analysis shows the opposite. His study neglected the fact that lowering rates by 20% also reduces the value of deductions by 20%, while he also ignored Romney’s repeal of the estate tax. The Tax Policy Center found that “taking the estate tax and other effects into account, Feldstein’s proposals come up at least $90 billion short of revenue-neutral” in 2015. Tellingly, in his attempt to make the numbers add up for Romney, Feldstein redefines middle class as below $100,000, and his assumptions include significant cuts in tax deductions and exclusions for all families making more than $100,000 a year—an income level that reflects a family with a police officer and a teacher, for example. Even under an “illustrative” example Feldstein has given, these families would have to pay income and payroll taxes on their employer-sponsored health insurance for the first time, and they would lose their child tax credit. In other words, as the Tax Policy Center notes, Feldstein’s study demonstrates that Romney’s plan would indeed be a tax increase on middle-class families—he just denies that these families are actually middle-class.
Princeton Professor Harvey Rosen’s Study
Princeton professor Harvey Rosen simply ignores the fact that Romney would repeal the estate tax (which affects only the top 0.3% wealthiest estates) and roll back Medicare taxes for the 2% of families with the highest incomes. In other words, Rosen wishes away roughly one fifth of the tax cuts for the wealthy that are included in Romney’s plan. Rosen also argues that optimistic economic growth assumptions could pay for Romney’s tax plan, but he ignores the fact that the Tax Policy Center study showed that even using research by Romney advisor Greg Mankiw on the impact of tax rates on growth—an approach that wouldn’t be accepted by Treasury, the Congressional Budget Office, or most budget analysts—you can’t make Romney’s plan add up.
The AEI Study
AEI analyst Matt Jensen criticized the Tax Policy Center for failing to consider the possibility that he might eliminate the tax exclusion for municipal bond interest or the exclusion of interest on life insurance savings. He says this even though Romney has taken off the table measures that change the tax treatment of investment and savings.
The Tax Policy Center considered the issue, and it concluded that that even if Romney were to eliminate these two provisions—a step there is no indication he would take—it would still fail to pay for Romney’s tax cuts for the wealthy. Moreover, it should be noted that not only would removing the exclusion for municipal bonds raise borrowing costs for cities and states, but it would also require the unprecedented step of retroactively changing the tax treatment of bonds investors have already purchased. As the authors wrote: “Adding these two provisions to Governor Romney’s list of tax preferences potentially on the chopping block would thus not reverse the basic conclusion of our paper: simultaneously pursuing the five goals noted above would make the tax system less progressive, even if the tax expenditures used to finance the proposals are reduced in the most progressive way possible.”
The AEI criticism also ignores a basic fact about the Tax Policy Center: The Tax Policy Center bent over backwards to use the most favorable assumptions about Romney’s plan. For example, it assumed that Romney would eliminate every deduction for families over $200,000 outside of savings and investment—including, for example, the deduction for charitable contributions, which both Romney and the Republican Party platform have taken off the table. It also assumed that Romney would create a “cliff” so that as soon as a family made $200,001 a year, they would receive a massive cut in their deductions and loopholes; in reality, avoiding this distortion in the tax code would make it even harder for Romney’s plan to add up.
Wall Street Journal Editorial Board
Along with the three studies listed above, Governor Romney cited a “a couple at the Wall Street Journal.” Romney appears to have chosen to cite editorials by the Wall Street Journal editorial board as “studies” that show his plan can add up. Aside from failing to include any new analysis, the arguments in these editorials fail to rebut the Tax Policy Center’s findings. In one editorial, the WSJ editorial board writes that “on four separate occasions what TPC says is ‘mathematically impossible’—cutting tax rates and making the tax system more progressive—actually happened”, citing Reagan’s Tax Reform Act of 1986, and three other tax cuts from 1980 to 2007. Romney’s proposal has little in common with Reagan’s plan—the Tax Reform Act of 1986 raised taxed capital income at ordinary rates, limited deductible IRA contributions, and eliminated many tax shelters that benefit high-income taxpayers, all steps Romney would not take. And as noted above, even using the highly generous assumptions in a model by one of Romney’s advisors, his plan can’t generate enough growth to pay for his tax cuts for the wealthy. In addition, the Wall Street Journal editorial board has repeated the argument made by AEI’s Matt Jensen concerning bond interest and life insurance build-up and suffers from the same flaws.
Mitt Romney’s plans to cut the taxes of the wealthiest Americans lead will lead to tax hikes for middle class Americans. That’s the simple arithmetic.