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.
For those who didn't go to prestigious schools, don't come from money, and aren't interested in sports and booze—it's near impossible to gain access to the best paying jobs.
As income inequality in the U.S. strikes historic highs, many people are starting to feel that the American dream is either dead or out of reach. Only 64 percent of Americans still believe that it’s possible to go from rags to riches, and, in another poll, 63 percent said they did not believe their children would be better off than they were. These days, the idea that anyone who works hard can become wealthy is at best a tough sell.
Along with the Nancy Drew series, almost all of the thrillers in the popular teenage franchise were produced by ghostwriters, thanks to a business model that proved to be prescient.
In the opening pages of a recent installment of the children’s book series The Hardy Boys, black smoke drifts though the ruined suburb of Bayport. The town's residents, dressed in tatters and smeared with ash, stumble past the local pharmacy and diner. Shards of glass litter the sidewalk. “Unreal,” says the mystery-solving teenager Joe Hardy—and he's right. Joe and his brother Frank are on a film set, and the people staggering through the scene are actors dressed as zombies. But as is always the case with Hardy Boysbooks, something still isn’t quite right: This time, malfunctioning sets nearly kill several actors, and the brothers find themselves in the middle of yet another mystery.
There are two types of people in the world: those with hundreds of unread messages, and those who can’t relax until their inboxes are cleared out.
For some, it’s a spider. For others, it’s an unexpected run-in with an ex. But for me, discomfort is a dot with a number in it: 1,328 unread-message notifications? I just can’t fathom how anyone lives like that.
How is it that some people remain calm as unread messages trickle into their inboxes and then roost there unattended, while others can’t sit still knowing that there are bolded-black emails and red-dotted Slack messages? I may operate toward the extreme end of compulsive notification-eliminators, but surveys suggest I’m not alone: One 2012 study found that 70 percent of work emails were attended to within six seconds of their arrival.
This has led me to a theory that there are two types of emailers in the world: Those who can comfortably ignore unread notifications, and those who feel the need to take action immediately.
In most states, where euthanasia is illegal, physicians can offer only hints and euphemisms for patients to interpret.
SAN FRANCISCO—Physician-assisted suicide is illegal in all but five states. But that doesn’t mean it doesn’t happen in the rest. Sick patients sometimes ask for help in hastening their deaths, and some doctors will hint, vaguely, how to do it.
This leads to bizarre, veiled conversations between medical professionals and overwhelmed families. Doctors and nurses want to help but also want to avoid prosecution, so they speak carefully, parsing their words. Family members, in the midst of one of the most confusing and emotional times of their lives, are left to interpret euphemisms.
That’s what still frustrates Hope Arnold. She says throughout the 10 months her husband J.D. Falk was being treated for stomach cancer in 2011, no one would talk straight with them.
The Islamic State is no mere collection of psychopaths. It is a religious group with carefully considered beliefs, among them that it is a key agent of the coming apocalypse. Here’s what that means for its strategy—and for how to stop it.
What is the Islamic State?
Where did it come from, and what are its intentions? The simplicity of these questions can be deceiving, and few Western leaders seem to know the answers. In December, The New York Times published confidential comments by Major General Michael K. Nagata, the Special Operations commander for the United States in the Middle East, admitting that he had hardly begun figuring out the Islamic State’s appeal. “We have not defeated the idea,” he said. “We do not even understand the idea.” In the past year, President Obama has referred to the Islamic State, variously, as “not Islamic” and as al-Qaeda’s “jayvee team,” statements that reflected confusion about the group, and may have contributed to significant strategic errors.
New research confirms what they say about nice guys.
Smile at the customer. Bake cookies for your colleagues. Sing your subordinates’ praises. Share credit. Listen. Empathize. Don’t drive the last dollar out of a deal. Leave the last doughnut for someone else.
Sneer at the customer. Keep your colleagues on edge. Claim credit. Speak first. Put your feet on the table. Withhold approval. Instill fear. Interrupt. Ask for more. And by all means, take that last doughnut. You deserve it.
Follow one of those paths, the success literature tells us, and you’ll go far. Follow the other, and you’ll die powerless and broke. The only question is, which is which?
Of all the issues that preoccupy the modern mind—Nature or nurture? Is there life in outer space? Why can’t America field a decent soccer team?—it’s hard to think of one that has attracted so much water-cooler philosophizing yet so little scientific inquiry. Does it pay to be nice? Or is there an advantage to being a jerk?
Soccer’s international governing body has long been suspected of mass corruption, but a 47-count U.S. indictment is one of the first real steps to accountability.
Imagine this: A shadowy multinational syndicate, sprawling across national borders but keeping its business quiet. Founded in the early 20th century, it has survived a tumultuous century, gradually expanding its power. It cuts deals with national governments and corporations alike, and has a hand in a range of businesses. Some are legitimate; others are suspected of beings little more than protection rackets or vehicles for kickbacks. Nepotism is rampant. Even though it’s been widely rumored to be a criminal enterprise for years, it has used its clout to cow the justice system into leaving it alone. It has branches spread across the globe, arranged in an elaborate hierarchical system. Its top official, both reviled and feared and demanding complete fealty, is sometimes referred to as the godfather.
In any case, people have probably heard the phrase in reference to something gone awry at work or in life. In either setting, when the shit does hit the fan, people will tend to look to the most competent person in the room to take over.
And too bad for that person. A new paper by a team of researchers from Duke University, University of Georgia, and University of Colorado looks at not only how extremely competent people are treated by their co-workers and peers, but how those people feel when, at crucial moments, everyone turns to them. They find that responsible employees are not terribly pleased about this dynamic either.
The plight of non-tenured professors is widely known, but what about the impact they have on the students they’re hired to instruct?
Imagine meeting your English professor by the trunk of her car for office hours, where she doles out information like a taco vendor in a food truck. Or getting an e-mail error message when you write your former biology professor asking for a recommendation because she is no longer employed at the same college. Or attending an afternoon lecture in which your anthropology professor seems a little distracted because he doesn’t have enough money for bus fare. This is an increasingly widespread reality of college education.
Many students—and parents who foot the bills—may assume that all college professors are adequately compensated professionals with a distinct arrangement in which they have a job for life. In actuality those are just tenured professors, who represent less than a quarter of all college faculty. Odds are that students will be taught by professors with less job security and lower pay than those tenured employees, which research shows results in diminished services for students.
Getting experienced educators to work in the highest-need schools requires more than bonus pay.
Standing in front of my eighth-grade class, my heart palpitated to near-panic-attack speed as I watched second hand of the clock. Please bell—ring early, I prayed. It was my second day of teaching, and some of my middle-school male students were putting me to the test.
In a span of three minutes, the group in room 204 had morphed from contained to out of control. Two boys were shooting dice in the back of the room, and as I instructed them to put their crumpled dollar bills away, several others took off their shoes and began tossing them around like footballs. Before I could react, one boy broke into my supply closet. He snatched handfuls of No. 2 pencils and highlighters and sprinted out of the room, slamming the door behind him.