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.
Some fans are complaining that Zack Snyder’s envisioning of the Man of Steel is too grim—but it’s less a departure than a return to the superhero’s roots.
Since the official teaser trailer for Batman v Superman: Dawn of Justice debuted online in April, fans and critics alike have been discussing the kind of Superman Zack Snyder is going to depict in his Man of Steel sequel. The controversy stems from Snyder’s decision to cast Superman as a brooding, Dark Knight-like character, who cares more about beating up bad guys than saving people. The casting split has proved divisive among Superman fans: Some love the new incarnation, citing him as an edgier, more realistic version of the character.
But Snyder’s is a different Superman than the one fans grew up with, and many have no problem expressing their outrage over it. Even Mark Waid, the author of Superman: Birthright (one of the comics the original film is based on), voiced his concern about Man of Steel’s turn toward bleakness when it came out in 2013:
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?
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.
19 Kids and Counting built its reputation on preaching family values, but the mass-media platforms that made the family famous might also be their undoing.
On Thursday, news broke that Josh Duggar, the oldest son of the Duggar family's 19 children, had, as a teenager, allegedly molested five underage girls. Four of them, allegedly, were his sisters.
The information came to light because, in 2006—two years before 17 Kids and Counting first aired on TLC, and thus two years before the Duggars became reality-TV celebrities—the family recorded an appearance on TheOprah Winfrey Show. Before the taping, an anonymous source sent an email to Harpo warning the production company Josh’s alleged molestation. Harpo forwarded the email to authorities, triggering a police investigation (the Oprah appearance never aired). The news was reported this week by In Touch Weekly—after the magazine filed a Freedom of Information Act request to see the police report on the case—and then confirmed by the Duggars in a statement posted on Facebook.
The brilliant mathematician, who died in a car accident on Sunday, was best known for his struggle with mental illness.
John Nash, a Nobel laureate and mathematical genius whose struggle with mental illness was documented in the Oscar-winning film A Beautiful Mind, was killed in a car accident on Saturday. He was 86. The accident, which occurred when the taxi Nash was traveling in collided with another car on the New Jersey Turnpike, also claimed the life of his 82-year-old wife, Alicia. Neither of the two drivers involved in the accident sustained life-threatening injuries.
Born in West Virginia in 1928, Nash displayed an acuity for mathematics early in life, independently proving Fermat’s little theorem before graduating from high school. By the time he turned 30 in 1958, he was a bona fide academic celebrity. At Princeton, Nash published a 27-page thesis that upended the field of game theory and led to applications in economics, international politics, and evolutionary biology. His signature solution—known as a “Nash Equilibrium”—found that competition among two opponents is not necessarily governed by zero-sum logic. Two opponents can, for instance, each achieve their maximum objectives through cooperating with the other, or gain nothing at all by refusing to cooperate. This intuitive, deceptively simple understanding is now regarded as one of the most important social science ideas in the 20th century, and a testament to his almost singular intellectual gifts.
In an interview, the U.S. president ties his legacy to a pact with Tehran, argues ISIS is not winning, warns Saudi Arabia not to pursue a nuclear-weapons program, and anguishes about Israel.
On Tuesday afternoon, as President Obama was bringing an occasionally contentious but often illuminating hour-long conversation about the Middle East to an end, I brought up a persistent worry. “A majority of American Jews want to support the Iran deal,” I said, “but a lot of people are anxiety-ridden about this, as am I.” Like many Jews—and also, by the way, many non-Jews—I believe that it is prudent to keep nuclear weapons out of the hands of anti-Semitic regimes. Obama, who earlier in the discussion had explicitly labeled the supreme leader of Iran, Ayatollah Ali Khamenei, an anti-Semite, responded with an argument I had not heard him make before.
“Look, 20 years from now, I’m still going to be around, God willing. If Iran has a nuclear weapon, it’s my name on this,” he said, referring to the apparently almost-finished nuclear agreement between Iran and a group of world powers led by the United States. “I think it’s fair to say that in addition to our profound national-security interests, I have a personal interest in locking this down.”
Advocates say that a guaranteed basic income can lead to more creative, fulfilling work. The question is how to fund it.
Scott Santens has been thinking a lot about fish lately. Specifically, he’s been reflecting on the aphorism, “If you give a man a fish, he eats for a day. If you teach a man to fish, he eats for life.” What Santens wants to know is this: “If you build a robot to fish, do all men starve, or do all men eat?”
Santens is 37 years old, and he’s a leader in the basic income movement—a worldwide network of thousands of advocates (26,000 on Reddit alone) who believe that governments should provide every citizen with a monthly stipend big enough to cover life’s basic necessities. The idea of a basic income has been around for decades, and it once drew support from leaders as different as Martin Luther King Jr. and Richard Nixon. But rather than waiting for governments to act, Santens has started crowdfunding his own basic income of $1,000 per month. He’s nearly halfway to his his goal.
Why agriculture may someday take place in towers, not fields
A couple of Octobers ago, I found myself standing on a 5,000-acre cotton crop in the outskirts of Lubbock, Texas, shoulder-to-shoulder with a third-generation cotton farmer. He swept his arm across the flat, brown horizon of his field, which was at that moment being plowed by an industrial-sized picker—a toothy machine as tall as a house and operated by one man. The picker’s yields were being dropped into a giant pod to be delivered late that night to the local gin. And far beneath our feet, the Ogallala aquifer dwindled away at its frighteningly swift pace. When asked about this, the farmer spoke of reverse osmosis—the process of desalinating water—which he seemed to put his faith in, and which kept him unafraid of famine and permanent drought.
People who wear and design prosthetics are rethinking the form of our species.
When Elizabeth Wright smacks her right leg on a table, she says “ow.” That’s only interesting if you know one more thing: that her right leg is made out of carbon fiber and metal. It’s also part of her. “It is my right leg, just as my left leg is my left leg, and just as your right leg is your right leg.”
Wright was born with something called congenital limb deficiency—neither her right arm or right leg grew to their full length in the womb. At 2 years old, she was fitted with a prosthetic leg, something she describes as “a revelation.” Around the time she was 6 years old the doctors decided it was time for her to try a prosthetic arm. That didn’t go as well. “This was in the 80s,” Wright says, “before the fancy hands you can use to pick up eggs and not break them. The arm that I got it was purely for aesthetic reasons, it just hung there like some kind of weird dead arm, and I couldn’t do anything with it. I could actually do less. So I think it lasted two or three days and then it got relegated to the cupboard. I refused to wear it.” And it stayed there. Today, Wright still uses a prosthetic leg, one that is wholly hers, entirely a part of her identity, and she still rejects the use of a prosthetic arm. She says she’s learned how to do things without it.