My favorite quote from sort-of-supportive academic study of Romney tax plan

My last post noted that Governor Romney has proposed a 20-percent cut in federal incone tax rates, and that the numbers don’t add up. Josh Barro*–not exactly a left-winger–posted a withering analysis here. The Romney campaign responded as follows:

There’s just one problem; Barro isn’t the first person to analyze Governor Romney’s tax plan using IRS data from 2009. In fact, Harvey Rosen, the John L. Weinberg Professor of economics and business policy at Princeton University and a public finance expert, also based his analysis on the same data but came to the opposite conclusion. Governor Romney’s tax plan works and the math adds up.

In fact, no fewer than six independent studies have confirmed the soundness of the Governor’s tax plan. Rather than wasting time trying to discredit the proposals of the Republican nominee, perhaps Mr. Barro and other journalists should investigate President Obama’s tax reform package. Or, more accurately, his lack of one.

I’ll let you read  Barro’s even more devastating response to the “six independent studies” remark. For starters, four of the six “studies” are blog posts or op-eds.

I have read Harvey Rosen’s short paper. It’s worthwhile reading, despite some problems that Barro notes. It’s produced with nowhere near the technical sophistication or detail of the Tax Policy Center’s original microsimulation-based critique. Despite Rosen’s breezy tone, I read his numbers to say the numbers don’t really work. Or rather the numbers might possibly work if one is willing to (a) reduce the tax ceiling to $100,000, and/or (b) assume supply-side growth effects regarding lowered marginal tax rates, and definitely (c) whack fundamental structures of the tax code which are so politically entrenched that Romney and Ryan are afraid to go near them right now. Here’s my favorite quote from Rosen’s paper:

In case you have trouble reading this, it says: “I imagine that doing so [making Romney's numbers work based on current 2013 tax law and protecting people with incomes below $200,000] would not be mathematically impossible.” This not-so-ringing endorsement is from perhaps the most credible economic study cited by the Romney campaign itself to show the validity of its plan.

Several readers suggest that the 2012 tax law baseline provides a fairer baseline than the 2013 tax law does. That’s a fair point. Below is Rosen’s results table with both baselines listed. The numbers look a bit better with the 2012 baseline. But my point stands. Under any scenario, one would neeed to fundamentally wack the tax code and hope for aggressive growth effects for the numbers to work. The first is just not going to happen. I doubt the second one would happen, either. This is not a credible plan, even if one has a relatively sympathetic analyst explore what it takes to make the numbers work.

The one substantive contribution Romney has made is the suggestion to cap deductions (and perhaps exemptions). I think this is an excellent idea.

*Josh Barro was originally misidentified. Apologies.

Comments

  1. John G says

    Short version: Romney campaign lies about analyses of his tax proposals. I suppose it would be more economical to create a macro on the computer for the first four words, so one would not have to re-type them so often…

  2. Tim says

    From Barro’s “study” analysis: …and the 20 percent rate cut figure was plucked out of thin air for political reasons without regard to whether it was feasible.

    Bingo.

  3. Warren Terra says

    As I read the blockquote, you’ve ignored (or not specifically discussed) the part where he assumes all the Bush tax cuts will expire – meaning it’s not a 20% cut on current rates, but on Clinton-era marginal rates, which were something like 10% higher. This is a huge difference, accounting for about half Romney’s tax cuts right there. Even if he only means the top marginal rate, that’s where a huge part of the money is.

  4. Ron E. says

    The top 1% don’t need any kind of tax cut regardless of whether it adds to the deficit or not. In fact their taxes should go up and even higher than just restoring the Clinton rates. Getting into a “It doesn’t add up. Yes it does. No it does not.” argument is exactly what Romney wants because it makes undecided idiot voters’ eyes glaze over and causes them to vote based on who the media says “won” the debate rather than on substance. Obama needs to follow Schumer’s lead and reject the premise of Romney’s tax plan altogether.

  5. JS says

    Maybe it’s reasonably easy to find and I just haven’t found it with all those ‘studies’ and all the articles, but I wonder when people talk about “assuming very generous growth”.. could any budget wonk out there say what sort of growth you have to assume to make the plan work?

    I mean, (as an example) if you need 5% annual GDP growth for 10-years straight to make the plan revenue-neutral, that would be a figure you could compare to the last 30 years of actual economic data, much of it including lower and lower nominal tax rates. My assumption is that the information doesn’t exist because it just can’t be expressed in a more easily understood way, but it might be helpful if we had a better idea of exactly how large of a magic asterisk we’re talking about here.

    At least so far as I understand the discussions, I get the impression that it’s a farcically large asterisk.

    • JS says

      Perhaps a clue from the non-partisan Congressional Joint Committee on Taxation yesterday. They’re out with a new study that (paraphrased) says that ‘immediate repeal of some of the most popular tax benefits would pay for only a 4 percent cut in U.S. income tax rates’.

      The study didn’t look at cutting all tax expenditures, so of course the Romney people are trying to call it irrelevant. But as the Congressional committees scores budget/revenue plans without any room for magic asterisks (remember how difficult it was to bring in the ACA as revenue neutral, including pushing implementation back to carve out room in the original 10-year score window) – I think they are trying to tell us that Romney can reasonably pay for %1 trillion of his 20% tax cut with tax reform, leaving a full $4 trillion of the plan relying on magical supply-side growth to keep it revenue neutral.

      As suspected, farcically large.

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