Actually, ‘game changer’ tax report doesn’t say Romney wants to raise taxes on middle class

The Obama campaign has been hammering Mitt Romney over an analysis of his tax reform proposal that concluded it was “not mathematically possible” to design a plan that does what Romney says his would do:  a) cut tax rates by 20%, b) keep current tax breaks for savings and investing, and c) not increase deficit — at least without cutting other tax breaks so deeply that they result in a net tax increase on middle-income taxpayers.

But two folks from the Tax Policy Center — which coauthored the study with the Brookings Institution — says Team Obama is distorting the study’s findings. First, Howard Gleckman:

 … the real question is not whether Romney is proposing a huge middle-class tax increase (he isn’t). It is which of his ambitious campaign promises he will fail to keep. … Romney doesn’t have to raise taxes on the middle-class. He could fix this problem with less ambitious rate cuts on ordinary income, or by raising taxes on capital income. He could pay for his initiative outside of the individual income tax system by increasing corporate taxes—though he says he’d cut them. He could cut spending even more deeply than he’s already promised, though that would hurt low- and middle-income households too. Or he could just add to the deficit.

And Donald Marron:

I don’t interpret this as evidence that Governor Romney wants to increase taxes on the middle class in order to cut taxes for the rich, as an Obama campaign ad claimed. Instead, I view it as showing that his plan can’t accomplish all his stated objectives. One can charitably view his plan as a combination of political signaling and the opening offer in what would, if he gets elected, become a negotiation.

As the saying goes, “No battle plan survives first contact with the enemy.”  Even Ronald Reagan had to adjust his tax cut plan once he was elected in 1981.

There two ways to go into a negotiation. One, start with your most defensible offer and stick to it. Two, start with an extreme offer and them begin the process of compromise. Recall Jon Huntsman’s tax plan during the Republican campaign. He supported the “zero plan” of the Bowles-Simpson fiscal commission, as highlighted below:

Huntsman knew that the “zero plan” would only be a negotiating starting point, but it would put special interests who wanted to add back tax breaks in the position of having to justify an increase in marginal tax rates to pay for them. Very smart.

2 thoughts on “Actually, ‘game changer’ tax report doesn’t say Romney wants to raise taxes on middle class

  1. I saw the piece too, but it misses the point. While there’s no “evidence” Romney is suggesting a rise in “middle class” (sic) taxes, the cut in marginal rates has to be paid for SOMEWHERE. And many other plans that have been floated do the same thing, OR limit deductions, which is the same thing as a tax hike, for all intents and purposes. My commentary below:

    “I think the big joke here is that everyone is falling over themselves to offer a lower marginal rate, which is not necessarily helpful. For one thing, lowering rates (effectively offering a “flatter” tax) reduces the deductibility of mortgage interest, property tax, State and City taxes BY ITSELF, building in an offsetting TAX INCREASE even as marginal rates are lowered. Nobody seems to get this no matter how many time I explain this to them. The most elegant and effective solution RIGHT NOW is to RAISE RATES. It will lower the cost of borrowing as much as any Fed program, and make real estate more attractive as a purchase. This is what we need TODAY. The cut in marginal rates is little more than an illusion and always was- which is why TEFRA 1986 was an astounding failure.”

    • The report shows that Romney has defined a series of parameters to his plan that mathematically require a middle-class tax hike. Those parameters are a 20 percent rate cut, no increase in taxes on savings and investment, reducing tax deductions to pay for the lost revenue, and revenue neutrality.

      Whether Romney “wants” middle-class tax cuts is not the issue. Romney is proposing a set of conditions that would require them.

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