The Truth About Romney's Tax Plan: It's a Pipe Dream

Mathematically and politically, the GOP presidential hopeful's tax plan doesn't seem to work

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Reuters

Nothing is as simple as campaign commercials or candidate sound bites make it sound, especially not tax reform, and certainly not tax reform with very few details revealed. Just ask the economist Mitt Romney is holding up as a shield against attacks on his tax plan.

Specifically, ask John W. Diamond if he thinks it is possible, politically, to pass the sort of Romneyesque tax plan that Diamond predicts would create an additional 7 million jobs over the next decade.

"Absolutely not," the Rice University economist replied, in an interview this week. Even under a Romney presidency, he added, "I don't think there's any chance."

Diamond also said he "can't argue" with the basic conclusions reached by an independent group of economists who found - to much derision from the Romney camp but to the delight of President Obama and his campaign ad-makers - that Romney's plan would necessarily cut taxes on the wealthy but raise them on lower-income Americans.

But Diamond also said that the conclusions paint an incomplete picture of the benefits that lower-income Americans would receive from the Romney plan, such as greater employment opportunities and lower lifetime tax burdens.

"If we're going to make all of our policy decisions based off simple analysis like that," he said, "I think that's bad for America."

Diamond has built a body of research advancing the theory that simplifying the tax code - eliminating tax breaks and reducing marginal rates - will unleash growth, by cutting down on economic distortions in the code. About a month ago, the Romney campaign asked Diamond to apply his analytical model to Romney's tax plan, to estimate its job-creation potential.

Romney wants to cut income tax rates by 20 percent across the board. He wants to make the cuts "revenue neutral," eliminating enough tax breaks to offset the lost revenues from lowered rates. He and the campaign have refused to say thus far which loopholes he'd close, but Romney insists that his reform would maintain the current progressivity of the tax code - meaning that a tax cut for the wealthy would not be offset by higher taxes for the poor and middle class.

It is that progressivity goal that three economists at the Tax Policy Center, including one who served on President Obama's Council of Economic Advisers and one who served on the council under Republican President George H.W. Bush, judged earlier this month to be more or less impossible to reach under Romney's plan. Even allowing for enhanced growth from reforming the code, they wrote, there simply are not enough tax exemptions for the wealthy available for elimination to finance lower rates at the top.

As a result, the economists concluded, lower-income taxpayers would see their tax bills rise, on average.

On Friday, Romney ripped the Tax Policy Center study and touted Diamond's analysis of his proposal. "Rice University looked at my plan," Romney said, "and said, 'Mitt Romney's tax plan will create millions of jobs.' "

This is where things get tricky, economically and politically.

Diamond is not an adviser to the Romney campaign. He couldn't model the full Romney plan, because the Republican's campaign refuses to identify, even to him, which tax deductions and credits they would cut to make the plan revenue-neutral.  "They didn't give me a whole lot of guidance," he said.

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Jim Tankersley is a correspondent (economics) for National Journal.

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