Presidential debate: The details (or lack thereof) of Romney's tax plan(Read article summary)
Mitt Romney presented what Rogers writes was a fair and responsible but unspecific tax plan in Wednesday's debate.
From Wednesday's debate (emphasis added toÂ NPR transcript):
MR. ROMNEY: Well, sure. Iâd like to clear up the record and go through it piece by piece. First of all,Â I donât have a $5 trillion tax cut.Â I donât have a tax cut of a scale that youâre talking about. My view is that we ought to provide tax relief to people in the middle class. ButÂ Iâm not going to reduce theÂ share of taxes paidÂ by high- income people...
âŚlook, Iâm not looking to cut massive taxes and to reduce the â the revenues going to the government. My âÂ my number one principle is thereâll be no tax cut that adds to the deficit.
I want to underline that â no tax cut that adds to the deficit. ButÂ I do want toÂ reduceÂ the burden being paid byÂ middle-income Americans.Â And I â and to do that that also means thatÂ IÂ cannot reduceÂ the burden paid byÂ high-income Americans.Â So any â any language to the contrary is simply not accurate.
First, Romney says he will have âno tax cut that adds to the deficit.âÂ How to reconcile this withÂ not raisingburdens on âmiddle-incomeâ Americans andÂ not reducingÂ burdens on âhigh-incomeâ Americansâgiven theÂ Tax Policy Centerâs analysisÂ of the kind of base broadening needed to support a 20% across the board reduction in marginal income tax rates (inÂ additionÂ to the proposed extension of the full complement of Bush tax cuts)Â andno increase in effective tax rates on capital income?
A few possibilities I see: (i) Romney is willing to back off the 20% figure for the marginal tax rate cuts; (ii) Romney is implicitly fiddling around with his definition of âmiddle incomeâ vs. âhigh incomeâ (consistent withMartin Feldsteinâs pointÂ that you might be able to avoid raising burdens on middle-income households as long as âmiddle-incomeâ ends at $100,000); and/or (iii) Romney is using âdynamic scoringâ assumptions that assume growth effects offset any âstaticâ revenue loss.Â Some combination of those three tradeoffs is being exploited here.
Second, Romney says he is ânot going to reduce theÂ share of taxes paidÂ by high- income people.âÂ How to reconcile this with reducing marginal tax rates and keeping capital income tax expenditures out of the tax base?Â Well, two cautions here, noting what Romney is literally saying:
- If the Romney plan is actually revenue losing, then maintaining the high-income householdsâ share of a smaller overall tax burden would still imply a reduction in the progressivity of the income tax systemââprogressivityâ referring to the existing pattern of rising average tax burdens (taxes paid/income) at higher income levels.Â AÂ constantÂ share of aÂ shrinkingÂ progressive policy means the rich personâs burden, relative to his or her income, goes down more than it does for someone with lower income.Â The reference to âshares of taxes paidâ was a favorite way of talking about the (claimed âincreasedâ) progressivity of the Bush tax cuts by the Bush Administration.Â Given that a lot of the Romney advisers are the same people who created, promoted, and managed the Bush tax cuts (way back in 2001), the use of this statistic to advertise the âfairnessâ of the Romney plan is not at all surprising.
- Exactly who are the âhigh-income peopleâ in this category?Â (Go back to point (ii) above, regarding the deficit-neutrality claim.)Â As the Tax Policy Center pointed out inÂ their response to the Feldstein critique, if we change the definition of âhigh incomeâ to aboveÂ $100,000 instead of above $200,000 or $250,000, itâs much easier to keep the burdens of this much broader category of households constant (or higher), by paying for net tax cuts on those above $200,000, with net tax increases on those between $100,000 and $200,000.Â You can technically call that ânot a reductionâ in the tax burdens of (all) âhigh-income peopleâ (meaning the aggregate category of people with income above $100,000), but most of us wouldnât find that a sensible way to increase the âfairnessâ of the tax system.
So Romney was very effective in Wednesday nightâs debate at making his tax plan sound, contrary to the Presidentâs claims, both fiscally responsible and fair, but thatâs because he was just able to declare it without explaining the details.Â And the President coming back with the details of the TPC analysis didnât work as well as it did when he first touted the analysis two months ago in his campaign speeches and TV ads.Â (CNNâs real-time sentiment meter of their sample of Colorado undecided voters recorded that point in Obamaâs remarks as his lowest point in last nightâs debate, in fact.)Â And the debate moderator certainly didnât follow up with the questions I would have.Â Â