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.
The Democratic insurgent’s campaign is losing steam—but his supporters are not ready to give up.
SANTA MONICA, Calif.—This is how a revolution ends: its idealism tested, its optimism drained, its hope turned to bitterness.
But if Bernie Sanders’s revolution has run aground in California, which will be one of the last states to vote in the Democratic primary on June 7, he was not about to admit it here, where thousands gathered on a sun-drenched high-school football field of bright green turf.
“We are going to win here in California!” Sanders said, to defiant cheers. In the audience, a man waved a sign that said, “Oh HILL no!”
This is Sanders’s last stand, according to the official narrative of the corrupt corporate media, and if there is anything we have learned in the past year, it is the awesome power of the official narrative—the self-reinforcing drumbeat that dictates everything.
A rock structure, built deep underground, is one of the earliest hominin constructions ever found.
In February 1990, thanks to a 15-year-old boy named Bruno Kowalsczewski, footsteps echoed through the chambers of Bruniquel Cave for the first time in tens of thousands of years.
The cave sits in France’s scenic Aveyron Valley, but its entrance had long been sealed by an ancient rockslide. Kowalsczewski’s father had detected faint wisps of air emerging from the scree, and the boy spent three years clearing away the rubble. He eventually dug out a tight, thirty-meter-long passage that the thinnest members of the local caving club could squeeze through. They found themselves in a large, roomy corridor. There were animal bones and signs of bear activity, but nothing recent. The floor was pockmarked with pools of water. The walls were punctuated by stalactites (the ones that hang down) and stalagmites (the ones that stick up).
Nicholas and Erika Christakis stepped down from their positions in residential life months after student activists called for their dismissal over a Halloween kerfuffle.
Last fall, student protesters at Yale University demanded that Professor Nicholas Christakis, an academic star who has successfully mentored Ivy League undergraduates for years, step down from his position as faculty-in-residence at Silliman College, along with his wife, Erika Christakis, who shared in the job’s duties.
The protesters had taken offense at an email sent by Erika Christakis.
Dogged by the controversy for months, the couple finally resigned their posts Wednesday. Because the student protests against them were prompted by intellectual speech bearing directly on Erika Christakis’s area of academic expertise, the outcome will prompt other educators at Yale to reflect on their own positions and what they might do or say to trigger or avoid calls for their own resignations. If they feel less inclined toward intellectual engagement at Yale, I wouldn’t blame them.
A gay-rights amendment takes down a House appropriations bill, and with it might go the speaker’s grand plan to revive the congressional spending process.
The state-by-state fight for gay and transgender rights has reached the floor of the House of Representatives, and it is ruining Speaker Paul Ryan’s carefully-laid plans for reviving the congressional spending process.
Republicans and Democrats voted down an annual bill appropriating funds for energy and water programs on Thursday morning after Democrats succeeded in attaching an amendment to bar federal contractors from discriminating on the basis of sexual orientation or gender identity. The provision drew bipartisan support only days after GOP leaders scrambled to defeat a similar amendment that Democrats tried to add to another appropriations bill—an embarrassing moment in which rank-and-file Republicans were cajoled into flipping their votes so the measure would fail. The attempt succeeded this time, but it became moot hours later when the underlying $37.4 billion measure went down in a landslide vote of 305-112, with majorities of both parties voting against it. The meltdown happened so quickly that it appeared to catch the House Appropriations Committee, which wrote the bill, off guard. The committee sent out a statement from Chairman Hal Rogers with a headline heralding its passage just minutes before it was voted down; it was quickly rescinded.
Narcissism, disagreeableness, grandiosity—a psychologist investigates how Trump’s extraordinary personality might shape his possible presidency.
In 2006, Donald Trump made plans to purchase the Menie Estate, near Aberdeen, Scotland, aiming to convert the dunes and grassland into a luxury golf resort. He and the estate’s owner, Tom Griffin, sat down to discuss the transaction at the Cock & Bull restaurant. Griffin recalls that Trump was a hard-nosed negotiator, reluctant to give in on even the tiniest details. But, as Michael D’Antonio writes in his recent biography of Trump, Never Enough, Griffin’s most vivid recollection of the evening pertains to the theatrics. It was as if the golden-haired guest sitting across the table were an actor playing a part on the London stage.
“It was Donald Trump playing Donald Trump,” Griffin observed. There was something unreal about it.
The 2016 campaign has revealed an America of stark division and mutual animosity.
ANAHEIM, Calif.—The police form a column that stretches across eight lanes of road and two sidewalks. There are dozens of them—Orange County deputies in olive-green uniforms and helmets with shields. A group of cops on horses occupies the middle of the street; they are flanked on either side by several rows of police on foot, holding their truncheons forward and yelling, over and over, “DISPERSE! LEAVE THE AREA!” as they march forward.
The cops are here, at the Trump rally, to prevent trouble.
A black man in a wifebeater shirt is waving a brightly colored homemade poster that reads, “LATINOS FOR BERNIE.” He is arguing heatedly with a middle-aged white man in a yellow hard hat with TRUMP written on it. Most of the other Trump supporters have been held back by police a block up the road.
A Greek archaeologist says he has located the classical philosopher’s final resting place.
A Greek archaeologist announced Thursday he has located the tomb of Aristotle, the classical philosopher whose voluminous writings shaped the intellectual trajectory of Western civilization.
Konstantinos Sismanidis, the archaeologist who excavated the find, announced the discovery at a conference in Thessalonica. The site is located in Stagira, a village in Greek Macedonia where Aristotle was born.
“We had found the tomb,” he said. “We’ve now also found the altar referred to in ancient texts, as well as the road leading to the tomb, which was very close to the city’s ancient marketplace within the city settlement.”
Although the evidence of whose tomb it was is circumstantial, several characteristics — its location and panoramic view; its positioning at the center of a square marble floor; and the time of its construction, estimated to be at the very beginning of the Hellenistic period, which started after the death of Aristotle’s most famous student, Alexander the Great, in 323 B.C. — “all lead to the conclusion that the remains of the arched structure are part of what was once the tomb-shrine of Aristotle,” Mr. Sismanidis said.
A year after Obama saluted the families for their spirit of forgiveness, his administration seeks the death penalty for the Charleston shooter.
On Tuesday, Attorney General Loretta Lynch announced she would seek the death penalty for Dylann Roof. It has not been a year since Roof walked into Emanuel African Methodist Episcopal Church and murdered nine black people as they worshipped. Roof justified this act of terrorism in chillingly familiar language—“You rape our women and you’re taking over our country.” The public display of forgiveness offered to Roof by the families of the victims elicited bipartisan praise from across the country. The president saluted the families for “an expression of faith that is unimaginable but that reflects the goodness of the American people.” How strange it is to see that same administration, and these good people, who once saluted the forgiveness of Roof, presently endorse his killing.
In recent years, the idea that educators should be teaching kids qualities like grit and self-control has caught on. Successful strategies, though, are hard to come by.
In 2013, for the first time, a majority of public-school students in this country—51 percent, to be precise—fell below the federal government’s low-income cutoff, meaning they were eligible for a free or subsidized school lunch. It was a powerful symbolic moment—an inescapable reminder that the challenge of teaching low-income children has become the central issue in American education.
The truth, as many American teachers know firsthand, is that low-income children can be harder to educate than children from more-comfortable backgrounds. Educators often struggle to motivate them, to calm them down, to connect with them. This doesn’t mean they’re impossible to teach, of course; plenty of kids who grow up in poverty are thriving in the classroom. But two decades of national attention have done little or nothing to close the achievement gap between poor students and their better-off peers.