Mitt Romney's tax plan is mathematically possible -- but only if the rich get richer at a level we have never seen before
Mitt Romney's tax plan is a logic puzzle. The details barely exist, but there are just enough of them to infer what the nonexistent details would be if they did exist. Think of it like the LSAT, just with more numbers. Pick up your number two pencils, and let's see what we can figure out.
II. Eliminate the Alternative Minimum Tax (AMT) and the estate tax
III. Close enough loopholes to make tax reform revenue neutral
IV. Maintain rates on savings and investment and eliminate them altogether for the middle class
V. Keep the mortgage-interest, healthcare, and charitable giving deductions for the middle class
VI. Have high-income earners will pay the same share of overall taxes that they do now
VII. Not raise taxes on middle-income taxpayers
The nonpartisan Tax Policy Center (TPC) has a head start on us. They looked at the first four conditions above -- Romney only laid out the others later -- and concluded that the numbers don't add up for 2015. There aren't enough tax expenditures for the rich to pay for the tax cuts for the rich. The result is a net tax cut for high-earners to the tune of $86 billion -- meaning taxes would have to go up by $86 billion on everybody making less than $200,000 for the plan to be revenue neutral.
That's a bummer. But is the Romney plan really unsalvageable? That depends on four big assumptions. First, what does Romney mean by middle class? Second, what taxes is Romney talking about when he talks about preserving rates on "savings and investment"? Third, how does Romney's corporate tax plan factor in? And finally, how much economic growth should we project? These assumptions are worth real money. Romney's annual revenue hole is either as small as $41 billion or as large as $144 billion depending on our answers here. Let's consider them in turn, and then see what we can piece together.
1. Who's middle class, exactly?
Former Reagan adviser and Harvard professor Marty Feldstein claims TPC got it wrong -- that Romney's tax math works without requiring a middle class tax hike. Feldstein argues that cutting tax expenditures for households making $100,000 or more would pay for their tax cuts. This is incorrect. Brad DeLong points out that there isn't enough money in those expenditures to pay for those cuts. But there's a bigger issue. Feldstein claims that Romney's plan would work by closing loopholes for households making between $100,000 and $200,000, but Romney defines those households as middle class. Feldstein inadvertently corroborates TPC's conclusion -- Romney's tax plan does require a middle class tax hike to work.
2. What's savings and investment?
TPC assumed that Romney would not change the tax treatment of savings and investment when he said he would not change the tax treatment of saving and investment. But maybe he will! Some conservatives have said Romney might consider ending the tax-exempt status of municipal bonds and inside-buildup of life insurance contracts. Even if that's true -- which is just speculation -- that wouldn't fill Romney's revenue hole. TPC analyzed these potential changes, and calculated that Romney's plan would still cut taxes for the rich by $41 billion.
3. What about corporate taxes?
Romney wants to overhaul our corporate tax system in two steps. The first step is cutting the tax rate from 35 to 25 percent, preserving recently added research credits and expensing provisions, and enacting a repatriation holiday. The second step involves lowering rates further, and moving to a territorial system -- meaning overseas corporate profits would not be subject to U.S. tax. Romney would pay for this second change by closing corporate loopholes, but he would not pay for the first change. TPC assumed both parts would be paid for, so it didn't look at this in its analysis -- but if it had, this unfunded change would have made Romney's revenue shortfall $96 billion worse. Thanks to this handy chart from the Congressional Budget Office that shows which income groups bear corporate income tax liability, we can estimate that 60 percent of this $96 billion would go to households making $200,000 or more. That's another $58 billion in cuts for the rich that needs to be offset.
4. What about growth?
Even under TPC's aggressive growth assumptions, Romney's plan was mathematically challenged. This wasn't a case of TPC being too timid with dynamic scoring -- it got its dynamic scoring numbers from Romney adviser Greg Mankiw. Not that we should expect revenue neutral tax reform to catalyze much growth. A 2011 paper by Alan Viard and Alex Brill of the conservative American Enterprise Institute concluded that a broader tax base would negate most of the supply-side effects of lower marginal rates in revenue neutral tax reform. In other words, people's incentives don't change when their taxes don't change even if their tax rates change.
Still got your number two pencils out? Now we're ready to tackle this logic game. Romney wants to cut rates and cut loopholes but keep everybody's taxes the same. That's the implication of a revenue neutral plan where the rich pay the same share and the middle class pay the same amount. It's just a complicated way of saying nobody's tax bills change. But we're back to the same old problem: the rich pay a lower effective federal tax rate under Romney's plan, so they won't pay the same share. Unless they have more money than we've assumed.
But there is one way that Romney's plan works mathematically: Income inequality explodes. If enough growth goes to the top 5% of earners, they will get rich enough to fill the revenue hole. How much richer would they have to get?
That depends on the size of the hole. There are four basic scenarios here. The shortfall could be $41 billion if Romney ends the special treatment of municipal bonds and life insurance buildups and we ignore his corporate tax plan. It could be $86 billion if Romney preserves the special treatment of municipal bonds and life insurance buildups and we ignore his corporate tax plan. It could be $99 billion if we take the first scenario and add the $58 billion of corporate income tax cuts for the rich. And it could be $144 billion if we take the second scenario and add the $58 billino of corporate income tax cuts for the rich. The chart below looks at how much richer the rich would have be -- compared to the TPC 2015 baseline -- for Romney's plan to add up under each of these scenarios. The answer: between 3.2 and 11.3 percent.
(Note: These changes are relative to how much TPC projects the top 5 percent will earn in 2015).
A lot of assumptions went into these calculations, so let's lay them out. First, I assumed that Romney would not raise or lower taxes on anyone making under $200,000. In other words, he would close just enough loopholes to pay for the 20 percent marginal cuts and $38 billion of corporate tax incidence for the non-rich. This would mean that any revenue hole in Romney's plan comes from the rich. Next, I assumed that the top 5 percent grow pari passu -- that is, households making $200,000 to $500,000 grow at the same rate as households making $500,000 to $1,000,000 and at the same rate as households making $1,000,000 and up. Then I reverse engineered the effective tax rates the rich pay under Romney's plan -- along with the original $86 billion revenue shortfall TPC found -- using the 2015 income levels from this TPC distributional table and the data in Tables 1 and 3 of TPC's analysis of the Romney plan. Finally, I divided the revenue hole in each of the above cases by the weighted effective tax rate the rich pay to figure out roughly how much more they would have to take home to make the numbers work. These assumptions are obviously not all true, but they are close enough to give us a reasonable answer to our question.
That answer is more inequality than we have seen before. The proof is in the Gini coefficients. Those measure inequality on a scale of zero to one. A rating of zero indicates perfect equality where everybody shares all the income, and nobody else makes more than anybody else; a rating of one indicates perfect inequality, where one person has all the income, and nobody else makes anything else. We already have the most unequal society of any rich nation, and TPC's 2015 projections imply it will only get worse. Even if the Bush tax cuts expire, our post-tax Gini coefficient will rise to 0.531 from 0.45 in 2007. That would increase to 0.544 under Romney's tax plan, and as much as 0.557 in the $144 billion shortfall case. It's the difference between us merely having Rwandan levels of inequality and having Bolivian levels of inequality. For comparison's sake, remember that Denmark and Japan are the world's most equal societies with 0.25 Gini coefficients.
The chart below looks at post-tax Gini coefficients for each of the 2015 tax scenarios. The only question is how much our republic is getting banana-ized.
(Note: Thanks to Michael Linden of the Center for American Progress for helping me calculate these Gini coefficients).
There's one word you've probably noticed again and again throughout this piece: assume. That's what we have to do again and again when it comes to Romney's tax plan. The details are mostly not there, but there are just enough of them to deduce some of the rest.
The upshot is this: Romney's tax plan does not work under remotely plausible growth projections. It either increases middle class taxes or increases the deficit. If Romney is serious about doing neither, then he has to be unserious about his growth projections. The rich have to get almost impossibly rich to make up for the lost revenue in Romney's tax plan. Realistically, their incomes would need to be 7.7 to 11.3 percent higher than TPC predicts -- that is, we should not ignore the corporate income tax cuts. To put that in perspective, that's between $377 and $548 billion additional dollars flowing to the top 5 percent of households.
Romney may not like this, but that just means he does not like his own tax plan. These numbers are the inescapable conclusion of a plan that relies on a giant magic asterisk to add up.
With Donald Trump its presumptive nominee after his win in the Indiana primary, the GOP will never be the same.
NEW YORK—Where were you the night Donald Trump killed the Republican Party as we knew it? Trump was right where he belonged: in the gilt-draped skyscraper with his name on it, Trump Tower in Manhattan, basking in the glory of his final, definitive victory.
“I have to tell you, I’ve competed all my life,” Trump said, his golden face somber, his gravity-defying pouf of hair seeming to hover above his brow. “All my life I’ve been in different competitions—in sports, or in business, or now, for 10 months, in politics. I have met some of the most incredible competitors that I’ve ever competed against right here in the Republican Party.”
The combined might of the Republican Party’s best and brightest—16 of them at the outset—proved, in the end, helpless against Trump’s unorthodox, muscular appeal to the party’s voting base. With his sweeping, 16-point victory in Tuesday’s Indiana primary, and the surrender of his major remaining rival, Ted Cruz, Trump was pronounced the presumptive nominee by the chair of the Republican National Committee. The primary was over—but for the GOP, the reckoning was only beginning.
In a letter to Governor Pat McCrory, the Department of Justice said HB2, the controversial law on transgender bathrooms, runs afoul of the landmark legislation and demanded the state not enforce it.
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In a letter to Governor Pat McCrory on Wednesday, the Justice Department said that HB2 violates Titles VII and IX of the Civil Rights Act. In the letter, first reported by The Charlotte Observer, Principal Deputy Assistant Attorney General Vanita Gupta notes that Title VII of the law prohibits employment discrimination on the basis of gender, and that courts have interpreted that to include gender identity of transgender people. The letter (via WRAL) states:
A new study shows that we burn many more daily calories than other apes.
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But humans, on the face of it, are exceptional. Compared to other apes, we reproduce more often (or, at least, those of us in traditional societies do) and our babies are bigger when they’re born and we live longer. And, as if to show off, our brains are much larger, and these huge organs sap some 20 percent of our total energy.
Sadiq Khan, the Labour Party candidate, is poised to make history.
Britain is holding local elections this week on what some have dubbed “Super Thursday,” but only one contest is worthy of the moniker: the race to succeed Boris Johnson as London’s mayor.
Mayoral elections rarely draw international attention. But the British capital is no ordinary city and its mayoralty is no ordinary office. London holds tremendous sway within Britain itself, both as an economic powerhouse and a population center. Roughly one in 10 members of Parliament come from the city’s constituencies—more than hail from Scotland, Wales, or Northern Ireland.
The office itself is also something of an anomaly. British governance tends to favor councils of local officials and collective government by cabinets of ministers. London’s mayor, by comparison, is elected by millions of voters from the city and its surrounding suburbs. Because most of Britain does not directly vote for the ministers in Parliament, let alone the House of Lords or the queen, the mayor can claim a stronger democratic mandate than perhaps any British politician other than the prime minister (who herself is not directly elected to that post, but assumes it as leader of the largest party in Parliament).
Given her general election opponent, she has a historic opportunity to unite a grand, cross-party coalition.
The Republicans have made their choice. Now the Democrats’ likely nominee faces a dilemma of her own: Run as a centrist and try to pile up a huge majority—at risk of enraging Sanders voters? Or continue the left turn she’s executed through these primaries, preserve Democratic party unity—at the risk of pushing Trump-averse Republicans back to The Donald as the lesser evil?
The imminent Trump nomination threatens to rip the Republican party into three parts. Trump repels both the most conservative Republicans and the most moderate: both socially conservative regular church attenders and pro-Kasich affluent suburbanites, especially women. The most conservative Republicans won’t ever vote for Hillary Clinton of course. But they might be induced to stay home—if Clinton does not scare them into rallying to Trump. The most moderate Republicans might well cast a cross party line vote—if Clinton can convince them that she’s the more responsible steward and manager.
By handcuffing a new seriesto its online-only service, the network is trying to catch the next wave of the television industry.
What’s the easiest way to tell that we’re in the midst of a television programming revolution? Just look at what the networks, the dinosaurs of the industry, are doing to keep up. On Tuesday, CBS detailed its plans for its prospective Netflix competitor “CBS All Access,” a monthly subscription-based online service that will use a new Star Trek show to try and reel in viewers. But where Netflix’s strategy is to become a vast repository of original content, dumping whole seasons of original shows at a time for people to sample at their leisure, CBS is trying to hold onto the weekly model that has defined broadcast strategy for decades. That compromise is currently untested, but it could be the future of the medium.
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Some will be tempted to respond like anti-Trump protesters in Costa Mesa, California. Violent elements in that crowd threw rocks at a passing pickup truck, smashed the window of a police cruiser, and bloodied at least one Trump supporter. Others in the crowd waved Mexican flags. “I knew this was going to happen,” a 19-year-old told the L.A. Times. “It was going to be a riot. He deserves what he gets.”
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Since 2013,the Federal Reserve Board has conducted a survey to “monitor the financial and economic status of American consumers.” Most of the data in the latest survey, frankly, are less than earth-shattering: 49 percent of part-time workers would prefer to work more hours at their current wage; 29 percent of Americans expect to earn a higher income in the coming year; 43 percent of homeowners who have owned their home for at least a year believe its value has increased. But the answer to one question was astonishing. The Fed asked respondents how they would pay for a $400 emergency. The answer: 47 percent of respondents said that either they would cover the expense by borrowing or selling something, or they would not be able to come up with the $400 at all. Four hundred dollars! Who knew?
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From the primary campaign’s beginning to its effective end Tuesday night, Trump’s core strength remained his overwhelming advantage among several big groups in the GOP electorate, particularly whites without a college education and men.
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As of 2002, about one in eight teens, or 12 percent, pledged to be sexually abstinent until marriage. Some studies have found that taking virginity pledges does indeed lead teens to delay sex and have fewer overall sex partners. But since just 3 percent of Americans wait until marriage to have sex, the majority of these “pledge takers” become “pledge breakers,” as Anthony Paik, a sociologist at the University of Massachusetts–Amherst, explains in his new study, which was published in the Journal of Marriage and Family.