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.
When President Obama left, I stayed on at the National Security Council in order to serve my country. I lasted eight days.
In 2011, I was hired, straight out of college, to work at the White House and eventually the National Security Council. My job there was to promote and protect the best of what my country stands for. I am a hijab-wearing Muslim woman––I was the only hijabi in the West Wing––and the Obama administration always made me feel welcome and included.
Like most of my fellow American Muslims, I spent much of 2016 watching with consternation as Donald Trump vilified our community. Despite this––or because of it––I thought I should try to stay on the NSC staff during the Trump Administration, in order to give the new president and his aides a more nuanced view of Islam, and of America's Muslim citizens.
Long after research contradicts common medical practices, patients continue to demand them and physicians continue to deliver. The result is an epidemic of unnecessary and unhelpful treatments.
First, listen to the story with the happy ending: At 61, the executive was in excellent health. His blood pressure was a bit high, but everything else looked good, and he exercised regularly. Then he had a scare. He went for a brisk post-lunch walk on a cool winter day, and his chest began to hurt. Back inside his office, he sat down, and the pain disappeared as quickly as it had come.
That night, he thought more about it: middle-aged man, high blood pressure, stressful job, chest discomfort. The next day, he went to a local emergency department. Doctors determined that the man had not suffered a heart attack and that the electrical activity of his heart was completely normal. All signs suggested that the executive had stable angina—chest pain that occurs when the heart muscle is getting less blood-borne oxygen than it needs, often because an artery is partially blocked.
“No… it’s a magic potty,” my daughter used to lament, age 3 or so, before refusing to use a public restroom stall with an automatic-flush toilet. As a small person, she was accustomed to the infrared sensor detecting erratic motion at the top of her head and violently flushing beneath her. Better, in her mind, just to delay relief than to subject herself to the magic potty’s dark dealings.
It’s hardly just a problem for small people. What adult hasn’t suffered the pneumatic public toilet’s whirlwind underneath them? Or again when attempting to exit the stall? So many ordinary objects and experiences have become technologized—made dependent on computers, sensors, and other apparatuses meant to improve them—that they have also ceased to work in their usual manner. It’s common to think of such defects as matters of bad design. That’s true, in part. But technology is also more precarious than it once was. Unstable, and unpredictable. At least from the perspective of human users. From the vantage point of technology, if it can be said to have a vantage point, it's evolving separately from human use.
Tucker Carlson’s latest reinvention is guided by a simple principle—a staunch aversion to whatever his right-minded neighbors believe.
Tucker Carlson is selling me hard on the swamp. It is an unseasonably warm afternoon in late January, and we are seated at a corner table in Monocle, an upscale Capitol Hill eatery frequented by the Fox News star. (Carlson, who typically skips breakfast and spends dinnertime on the air, is a fan of the long, luxurious, multi-course lunch, and when I requested an interview he proposed we do it here.) As we scan the menus, I mention that I’ll be moving soon to the Washington area, and he promptly launches into an enthusiastic recitation of the district’s many virtues and amenities.
“I’m so pathetically eager for people to love D.C.,” he admits. “It’s so sad. It’s like I work for the chamber of commerce or something.”
A new report explores why those who benefitted from Obamacare’s Medicaid expansion supported the man who promised to reverse it.
Here’s a question that’s baffled health reporters in the months since the election: Why would people who benefit from Obamacare in general—and its Medicaid expansion specifically—vote for a man who vowed to destroy it?
Some anecdotal reports have suggested that people simply didn’t understand that the benefits they received were a result of the Affordable Care Act. That was the case for one Indiana family The New York Times described in December:
Medicaid has paid for virtually all of his cancer care, including a one-week hospitalization after the diagnosis, months of chemotherapy, and frequent scans and blood tests.
But Mr. Kloski and his mother, Renee Epperson, are still not fans of the health law over all. They believed that it required that Mr. Kloski be dropped, when he turned 26, from the health plan his mother has through her job at Target — not understanding that it was the law that kept him on the plan until he was 26.
The polymath computer scientist David Gelernter’s wide-ranging ideas about American life.
Last month, David Gelernter, the pioneering Yale University computer scientist, met with Donald Trump to discuss the possibility of joining the White House staff. An article about the meeting in TheWashington Post was headlined, “David Gelernter, fiercely anti-intellectual computer scientist, is being eyed for Trump’s science adviser.”
It is hard to imagine a more misleading treatment.
By one common definition, anti-intellectualism is “hostility towards and mistrust of intellect, intellectuals, and intellectual pursuits, usually expressed as the derision of education, philosophy, literature, art, and science, as impractical and contemptible.”
Here is the exchange that I had with Gelernter when I reached out to ask if he would be interested in discussing the substance of his views on science, politics and culture.
The administration’s plan to force undocumented immigrants out of the U.S. largely hinges on America’s increasingly tense relationship with its southern neighbor.
One lesser-known feature of new U.S. immigration policies announced earlier this week—which will make the majority of undocumented immigrants targets for deportation—is the requirement of a willing partner for some of the measures to be implemented. According to Department of Homeland Security memos, any person caught illegally crossing the border from Mexico will be returned to Mexico, regardless of his or her nationality, while deportation processes and asylum claims are worked out by American courts.
This provision would effectively make America’s southern neighbor responsible for the lives of non-Mexican nationals seeking life or refuge in the United States. “If present immigration trends continue, that could mean the United States would push hundreds of thousands of Guatemalans, Hondurans, Salvadorans, Brazilians, Ecuadorans, even Haitians into Mexico,” Ginger Thompson and Marcelo Rochabrun explained at ProPublica. “Currently, such people are detained in the U.S. and allowed to request asylum.”
The preconditions are present in the U.S. today. Here’s the playbook Donald Trump could use to set the country down a path toward illiberalism.
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Fortunately for him, he did not need to campaign hard for reelection. His has been a popular presidency: Big tax cuts, big spending, and big deficits have worked their familiar expansive magic. Wages have grown strongly in the Trump years, especially for men without a college degree, even if rising inflation is beginning to bite into the gains. The president’s supporters credit his restrictive immigration policies and his TrumpWorks infrastructure program.
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Two top White House advisers put on a show of unity at a conservative conference, in a dialogue that served to highlight their differences.
OXON HILL, Md. — White House Chief of Staff Reince Priebus and chief strategist Steve Bannon want it to be known that they are on the same page.
But a joint appearance at the Conservative Political Action Conference on Thursday only served to further highlight the contrast between Priebus’s pragmatic establishment views with Bannon’s in-your-face nationalism. Their joint interview onstage at CPAC was notable, also, for the fact that Bannon rarely delivers public remarks.
Priebus and Bannon have been pushing back on the narrative that they helm two warring factions in the Trump White House: a pragmatic, establishment wing represented by Priebus, and an aggressively ideological wing spearheaded by Bannon. The two gave a joint interview to New York magazine recently in which they joked about giving each other back rubs, and Bannon, the former chairman of Breitbart News, pushed back heavily on a recent report in his former website that blamed Priebus for many of the administration’s problems, including the botched travel-ban rollout, telling me the story was “absurd” and reportedly yelling at the author of the story.
Liberals may need to decide whether to focus on energizing their base or expanding their coalition.
Democratic Senator Claire McCaskill, who is up for reelection in the red state of Missouri in 2018, recently told a St. Louis radio host she may face a primary challenge. “I may have a primary because there is, in our party now, some of the same kind of enthusiasm at the base that the Republican Party had with the Tea Party,” she said during an interview earlier this month. “Many of those people are very impatient with me because they don’t think I’m pure,” she added.
As the Democratic Party contemplates what’s next in the wake of its defeat in the presidential election, liberals may have to decide what matters more: Building a big tent party where far-left voters and moderate centrists can co-exist even if they occasionally disagree on policy and strategy, or focusing on the demands of the party’s progressive base, potentially creating a more like-minded and ideologically rigid coalition in the process.