"[I]t is not possible to design a revenue-neutral plan that does not reduce average tax
burdens and the share of taxes paid by high-income taxpayers under the conditions described
above, even when we try to make the plan as progressive as possible."
With this statement, a new report from the Brookings Institution and the Tax Policy Center blows the lid of the even the scant tax plan promoted by Gov. Romney. You can read the full report here and the article in the Washington Post here, but the punchline is this: If you do what Romney wants to do to the tax code and then try and make it revenue neutral you will end up increasing the tax burden on people making less than $200,000 a year, while reducing the tax burden on those making more than $200,000.
In order to achieve revenue neutrality we would have to eliminate the mortgage interest tax credit, eliminate tax breaks on employer-funded health insurance, tax breaks against state and local income, and child care tax breaks. While that might be sound economic advice, all those tax breaks are very popular with the middle class. The Washington Post reports the tax burden for 95% of population would increase by 1.2% under Romney's plan.
I'll be updating throughout the day with more analysis, but something to start your morning off.
Updated 12:02pm: From Matt Yglesias writing at Slate, "Raising taxes on the rich and middle class alike in order to afford spending on social insurance, education, and infrastructure is one thing. Raising taxes on the middle class in order to afford tax cuts for the rich is another."
Updated 11:50am: Wonkblog has a post up on the Romney tax plan and a GOP Congressional alternative, "Romney can take some solace in knowing his allies in Congress have proposed a plan that shifts the burden from high-income to middle-income taxpayers even more dramatically. A new paper by Chuck Marr and Chye-Ching Huang at the Center for Budget and Policy Priorities looks at the distributive impact of the Pathway to Job Creation Through a Simpler, Fairer Tax Code Act of 2012, the proposal introduced by Senate Minority Leader Mitch McConnell (R-Ky.) and House Ways and Means chairman David Camp (R-Mich.), and included in the 2013 House Republican budget, that would set a framework for tax reform."
Updated 11:17am: Think Progress weighs in the Brookings Report, "On several occasions, Romney has denied that his tax plan would provide a big tax break to the wealthy. But as this analysis shows, even giving him all of the benefit of the doubt when it comes to eliminating deductions, the plan is still a massive tax break for the rich." (h/t @_al_man)
burdens and the share of taxes paid by high-income taxpayers under the conditions described
above, even when we try to make the plan as progressive as possible."
With this statement, a new report from the Brookings Institution and the Tax Policy Center blows the lid of the even the scant tax plan promoted by Gov. Romney. You can read the full report here and the article in the Washington Post here, but the punchline is this: If you do what Romney wants to do to the tax code and then try and make it revenue neutral you will end up increasing the tax burden on people making less than $200,000 a year, while reducing the tax burden on those making more than $200,000.
In order to achieve revenue neutrality we would have to eliminate the mortgage interest tax credit, eliminate tax breaks on employer-funded health insurance, tax breaks against state and local income, and child care tax breaks. While that might be sound economic advice, all those tax breaks are very popular with the middle class. The Washington Post reports the tax burden for 95% of population would increase by 1.2% under Romney's plan.
I'll be updating throughout the day with more analysis, but something to start your morning off.
Updated 12:02pm: From Matt Yglesias writing at Slate, "Raising taxes on the rich and middle class alike in order to afford spending on social insurance, education, and infrastructure is one thing. Raising taxes on the middle class in order to afford tax cuts for the rich is another."
Updated 11:50am: Wonkblog has a post up on the Romney tax plan and a GOP Congressional alternative, "Romney can take some solace in knowing his allies in Congress have proposed a plan that shifts the burden from high-income to middle-income taxpayers even more dramatically. A new paper by Chuck Marr and Chye-Ching Huang at the Center for Budget and Policy Priorities looks at the distributive impact of the Pathway to Job Creation Through a Simpler, Fairer Tax Code Act of 2012, the proposal introduced by Senate Minority Leader Mitch McConnell (R-Ky.) and House Ways and Means chairman David Camp (R-Mich.), and included in the 2013 House Republican budget, that would set a framework for tax reform."
Updated 11:17am: Think Progress weighs in the Brookings Report, "On several occasions, Romney has denied that his tax plan would provide a big tax break to the wealthy. But as this analysis shows, even giving him all of the benefit of the doubt when it comes to eliminating deductions, the plan is still a massive tax break for the rich." (h/t @_al_man)
12 comments:
If Mitt Romney is willing to increase taxes on the middle class (and, presumably the poor as well) through the elimination of loopholes in the tax code then that is excellent news indeed. Unfortunately I highly doubt he has the courage to actually move forward on such a plan.
Just to clarify, are you saying you're in favor of making taxes less progressive?
While my primary attraction to this Romney plan is the elimination of tax expenditures (if indeed that is how the lowered rates are paid for), any flattening of the tax code is an added bonus.
What the report does is take Romney's tax plan which involves "extend the 2001-03 tax cuts, 3
reduce individual income tax rates by 20 percent, eliminate taxation of investment income of
most taxpayers (including individuals earning less than $100,000, and married couples earning
less than $200,000), eliminate the estate tax, reduce the corporate income tax rate, and repeal the
alternative minimum tax (AMT) and the high-income taxes enacted in 2010’s health-reform
legislation," and then takes Romney's camp at it's word that, "the remainder of the plan will include policies to offset this revenue loss."
The thing is, the Romney tax plan doesn't actually identify how it will offset the lost revenue. So the researchers at Brookings and the Tax Policy Center did the math. But the math doesn't add up.
In other words, Romney has come out broadly for the elimination of tax expenditures, but hasn't cited any specifics. That the plan makes the tax code less progressive than it currently is, is just a function of arithmetic. Romney is not trying to make the tax code less progressive.
Romney is not trying to make the tax code less progressive.
If Romney is cutting taxes for the rich and raising them on the middle class, how is the tax code not becoming less progressive?
I feel like this is one of those times where it'd be beneficial to glance over the report that's the basis for the post.
Nonetheless, Romney's plan is to lower rates for everyone, not just the "rich," as outlined in my previous comment. Brookings is simply doing the arithmetic to see how you cut rates like Romney has suggested and yet keep the same level of revenue.
As the Think Progress link mentions, Romney has said specifically that this is not a tax break for the rich. And I certainly don't think he's suggested he's going to raise taxes on the middle class.
What the report does is basically makes the decisions about how you maintain revenue neutrality when you implement Romney's plan. None of these decisions on how you make up the lost revenue have been specifically cited by Romney. It is merely a function of the arithmetic, as done by Brookings, that the tax code becomes less progressive.
Brookings is simply doing the arithmetic to see how you cut rates like Romney has suggested and yet keep the same level of revenue.
I'm aware of that. And if Romney does this, then the tax code is becoming less progressive as the eliminated tax expenditures disproportionately benefit the middle class.
Furthermore, in today's WSJ we have this statement from Glenn Hubbard:
The Romney plan would reduce individual marginal income tax rates across the board by 20%, while keeping current low tax rates on dividends and capital gains...In addition, he would broaden the tax base to ensure that tax reform is revenue-neutral.
So if Romney's plan is to cut tax rates and then make it revenue-neutral through the elimination of tax expenditures (granted, the math probably doesn't work, but this would at least somewhat offset the revenue losses) -- which will necessarily involve high profile items such as the mortgage interest deduction -- then I applaud that. It's a two-fer -- fewer distortions and less progressivity.
As I said before, however, I don't expect Romney to actually follow through with anything like this and I suspect such a plan will never see the light of day in Congress.
The column by Mr. Hubbard has a bit of linguistic ninjutsu in it, and stops short of saying Romney will make the tax system less progressive. When he says "broaden the tax base" it's not the same thing as raising rates on the middle class. Also of note, there is no mention of eliminating tax expenditures.
When he says "broaden the tax base" it's not the same thing as raising rates on the middle class.
No kidding -- broadening the tax base is most commonly understood to be defined as the elimination of tax preferences/expenditures. And through such eliminations one can make the tax code less progressive without raising rates.
Yes, "the elimination of tax preferences/expenditures" that put more tax burden on the lower economic rungs of our society then they experience currently.
Yes, "the elimination of tax preferences/expenditures" that put more tax burden on the lower economic rungs of our society then they experience currently.
Right, which I support and have said so from the beginning. I'm not sure what your argument is with me.
I hate to disappoint, but I don't think we're arguing.
At the time of my post we didn't have this Hubbard column, which is to say at the time I published the post Romney had not come out advocating to make the tax code less progressive.
It appears since that time Hubbard, writing as a representative for the Romney has campaign, has said (somewhat obliquely) that the plan is to make the tax code less progressive by increasing the tax burden on people in the lower income brackets.
I would add, though, that Hubbard does not suggest that the middle class will see rates increase, where as the Brookings report says they'll need to be raised in order to maintain revenue neutrality.
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