Mitt Romney's Tax Plan Is a Moral (and Mathematical) Failure
President Obama and his likely GOP opponent both flunk tax policy. But these failures are not equivalent.
The Tax Policy Center has released its new-and-improved analysis of Mitt Romney's new-and-"improved" tax plan, and here's what they found. Lower taxes for everyone except the lowest-income Americans. Bigger tax breaks for the richest. And $500 billion added to the deficit by 2015 that we would have to borrow or cut.
Here's the gist of Romney's plan in three easy steps. First, he begins with extending the Bush(/Obama) tax cuts and slashing individual income tax rates by another 20 percent. Second, he all but erases Obama's term from the tax bill by repealing both Obamacare's taxes and the stimulus tax credits the president would like to extend. Third, he would make long-term investment income for the middle class practically free. There are other provisions, but these are the biggies.
And it all adds up to one big tax cut. Where does the money go? It goes to the top. Here is a graph of change in taxes paid under Romney's plan. The poor pay a little bit more. The rich pay a lot less. This is the natural outcome of cutting taxes while eliminating Obama's progressive tax credits [the X-axis is in dollars, and the bars are labeled by income group, in thousands of dollars].
I include the first graph because it captures the way most people talk about tax plans: How much more or less would I pay? But the most honest accounting of a tax proposal focuses on change in effective tax rate. Somebody making between $10,000 and $20,000 would pay 1% more in taxes than they would under Obama's current policy. Somebody making between $500,000 and $1 million would pay between 7% less in taxes: [X axis tracks; percent change in total federal taxes paid; bars are labeled by income class, in thousands of dollars]
When liberals look at these graphs, here is what some of them say: After 30 years of tax cuts and median-wage stagnation that has only been offset by government help for the needy, Mitt Romney wants to cut taxes again, but only for the rich, and pay for it by cutting government help to the needy. Are you kidding me?
When conservatives hear liberals talk about these graphs, here is what some of them respond: After 30 years of growth in government bloat and three years of national stagnation, we need growth that will come from tax cuts for the middle class and job creators. The required cuts to government will be a useful consequence of the resulting loss of revenue. You guys are against leaner government and lower taxes: Are you kidding me?
Should we cut government? Probably! We can keep cutting discretionary spending, change the Social Security inflation measure, spend less on health care, consolidate savings from the end of the Middle East wars, and more. But we have to recognize that government cuts will have a cost, and that cost will likely touch the country's least privileged. Why on earth, against all historical evidence that tax cuts are magical growth seeds, would we make this difficult job even more difficult by cutting taxes for millionaires by $250,000? This is the arithmetic tragedy of Romney's plan: It is a numbers-smart business man's capitulation to math-dumb politics.
In December 2010, the Simpson-Bowles commission created an easy two-step plan for tax reform. Lower rates and raise revenue. Romney and Obama both fail the SB Test. Romney's plan lowers rates, but also lowers revenue. Obama's raises revenue, but also raises rates.
These are both failures. But they are not equal failures. The president understands something that remains invisible to the modern Republican Party: You don't cut taxes by $500 billion to close a deficit. Beginning deficit reduction with less money is like beginning to build a bridge between two land masses by demolishing a mile of land on the other side.