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Why Bill Clinton is wrong about the Romney tax plan. Henry Blodget, too

Business Insider’s Henry Blodget:

Well, we’ve taken a hard look at this plan, and we just can’t make the numbers work. Even when making very pro-Romney assumptions about growth and loophole elimination, we found that the Romney tax plan will radically increase the debt and deficit.

The Tax Policy Center, which is a non-partisan organization, also couldn’t make the numbers work. The TPC concluded the plan is “mathematically impossible” unless Romney raises taxes on the middle class.

Yes, some Romney advocates have argued that the plan will work, but even some of them concluded that the plan would increase taxes on people that Romney considers middle class (those earning between $100,000 and $250,000).

Seeking to head off the Romney surge, the Obama campaign has now put out an ad starring the Democratic “explainer in chief,” Bill Clinton, explaining why Romney’s tax plan won’t do what he says it will do.

Clinton concludes:

  • The richest Americans, those making over $3 million a year, will get a $250,000 tax cut
  • Middle-class families will get an average tax increase of $2,000

A few problems here, as AEI’s Alex Brill has noted. Both Brother Blodget and President Clinton refer to the Tax Policy Center study which estimates that the Romney plan would a) reduce the tax payments of high-income earners by $86 billion in 2015 and thus b) revenue neutrality would then require an $86 billion tax increase on the middle class.

But that $86 billion is actually just $41 billion when you take into account base broadeners TPC forgot about. And Romney doesn’t count paying for the repeal of various Obamacare taxes as part of his revenue neutrality goal via tax reform. (That would be part of healthcare reform.) So now the gap is down to $12 billion, or just 0.3% of forecasted 2015 revenue. I would call that close enough for government work. Still, even if GDP growth were just  0.1 percentage point faster per year as a result of Romney tax reform, the additional revenue in 2015 would be approximately $13 billion.

Now you could raise legit questions about the political math of the Romney plan, but the policy math works. Let me also add that the U.S. corporate rate is so far on the wrong side of the Laffer Curve that a big rate reduction there could well pay for itself, freeing up the elimination of corporate tax breaks to help pay for individual reform, as happened during the 1986 tax reform. Romney doesn’t factor that in, but I would.

Oh, and the Joint Tax Committee just released a study critical of the idea of paying for lower rates than base broadening. Here’s why it is flawed.

 

 

21 thoughts on “Why Bill Clinton is wrong about the Romney tax plan. Henry Blodget, too

  1. this is not hard to figure out. If you cut taxes across the board and you want to make it “revenue neutral”, it means that some who had previously benefited from tax breaks will lose them and pay MORE.

    Now the money they had previously gotten from the tax breaks would have been invested or spent – and now will not because it’s been used to give a tax rate tax break to others. A kind of “redistribution”.

    So the basic premise here seems to be that the new recipients will do something different with their lower taxed, increased refunds… DIFFERENTLY that the folks that formerly received that money via specific tax breaks.

    Is there any real reason to believe that redistributing how taxes are levied will result in more “growth”?

    Nope.

    And where in the middle of all of this – do you pay down the deficit?

    We tried this twice under Bush and what happened?

    I cannot believe that the folks who promote this think the average voter is that dumb but the sad fact is that more than a few believe whatever sound bites they are already inclined to believe and not do some simple thinking on the logic behind the sound bite.

    • That’s not the premise at all. The premise is that by lowering marginal rates you will promote growth. By lowering rates and eliminating deductions, you can get revenue neutrality, while having a more pro-growth structure.

      The idea is to eliminate deductions that go to the people getting the tax rate cuts (making their current tax bill the same, but the tax on the next dollar that they earn less). So, I don’t know where you’re getting redistribution nonsense from.

      This is NOT what was “tried under Bush.” (Regardless of what you think of this plan or Bush’s tax cuts.)

      • One can promote Growth by reducing TAX like JFK did in the 1960 Era – the difference is when JFK did … USA was in SURPLUS – which meant that No other Country in 1960′s Could have been able to produce Products what USA did. Now both China and South Korea can produce same products with less cost – They know how to … then the Competition will kill the Companies in the US. Like A123 systems bankruptcy – is an EX ,,, and back then the Marginal Tax was 90 cut 20 left 70 … now ???

    • Is there any real reason to believe that redistributing how taxes are levied will result in more “growth”?

      Nope.“…

      Then again larry g you’ve show a consistent stubbornness to getting a grip on reality…

      It has been shown time and again, you’ve been shown time and again that when people aren’t going to be punished for being successful through extorntionist government tax practices they will be which means more money all around…

      • ” It has been shown time and again, you’ve been shown time and again that when people aren’t going to be punished for being successful through extorntionist government tax practices they will be which means more money all around…”

        but that’s an argument against ALL taxation , right?

        we knew it would not be long before you got there.

        so you must be beside yourself for Romney saying he is going to take people’s tax breaks away and give that money to others by lowering their tax rate.

        you support that?

        • but that’s an argument against ALL taxation , right?“…

          Why is that a problem with you?…

          so you must be beside yourself for Romney saying he is going to take people’s tax breaks away and give that money to others by lowering their tax rate“…

          I’ve never supported Romney…

          I kniow that there has never been an actual, honest to God Constitutional conservative politician to come from the northeast and I surely did not expect a R.I.N.O. like Romney to change his spots either…

  2. “That’s not the premise at all. The premise is that by lowering marginal rates you will promote growth. By lowering rates and eliminating deductions, you can get revenue neutrality, while having a more pro-growth structure.”

    That makes absolutely no sense. This is like the proverbial squeezing of a baloon. If marginal rates are cut, and they are paid for with reduced deductibility, you have accomplished precisely nothing.

    This looks like a replay of TEFRA 1986, and the country doesn’t need that. It is dangerous enough, BY ITSELF, to lower marginal rates and put a crimp in real estate at precisely the moment we’re seeing a measure of recovery.

    I don’t give a damn where you stand politically or if you Obama is Trotsky- this is a reckless idea. I lived through it before, and believe me, you don’t want to live through it again. The country has been through enough.

    This tax plan is utterly pointless, and accomplishes nothing. Its a shell game.

    • re: “That’s not the premise at all. The premise is that by lowering marginal rates you will promote growth. By lowering rates and eliminating deductions, you can get revenue neutrality, while having a more pro-growth structure.” That makes absolutely no sense.”

      this is the “lying” part that folks have been complaining about.

      the real premise is that if enough GOP surrogates repeat it that a good number will believe it.

      You know the GOP is desperate when they’re recycling supply-side economics.

      You don’t need a “study” to see just how goofy this premise is.

        • re: “government spending” … is not justification for lying about tax reform.

          For ever guy that gets a lower tax rate, there is another guy who lost a tax deduction.

          While I DO AGREE that we spend too much – at least a trillion more than we take in -in taxes, lying about tax “reform” is going to lead to an even bigger deficit.

          we already know how supply-side “works” but you’re not really increasing revenue by cutting the tax rate if the lowering of the rate is paid for by reducing tax-breaks.

          In fact, they claim it is “revenue neutral” and it is – you’re just taking away one guys’ tax deduction and giving it to others ..

          that DUMB because there is no more money in play to create growth than there was before – assuming you would agree that money does not care if it came from a tax deduction or lowering tax rates. It works out precisely the same except we’re are being told that “somehow” if someone gets money from lowering the tax rate that it will spend differently and “create” growth when the same money in someone else’s pocket as a tax deduction … did not.

          Such tom-foolery is justified apparently because “government spends too much”.

          some folks really do believe that the average person is too stupid to see this bogus “reform”.

          Bush blew up the budget with this idea and I do not see any difference between the Bush tax cuts and this foolishness.

          • So in your world larry g its OK to lie about the reasons to extort tax dollars but its not OK to lie (assumming you actually find the alledged lie) about how to fix the problems the original lies caused?!?!

            lying about tax “reform” is going to lead to an even bigger deficit“…

            According to what credible source or person?

            In fact, they claim it is “revenue neutral” and it is – you’re just taking away one guys’ tax deduction and giving it to others“…

            Ahhh yes, similer to the bizzare riddle of ObamaCare stealing from Medicare but overall its merely just another wealth redistribution scam at gun point…

            Bush blew up the budget with this idea and I do not see any difference between the Bush tax cuts and this foolishness“…

            ROFLMAO!

            Bush was at best problematic without a doubt but compared to the Kenyan Kommie Klown Bush almost looks frugal…

          • re: lying vs government spending.

            so anything the govt does that you don’t agree with justifies lying about anything associated with govt reforms?

            That seems to be what it’s all about now… eh?

        • This is what makes the GOP so infantile- so Coburn identified $18 billion of waste.

          You think THAT’S the problem? If all this were eliminated tomorrow, what do you think that does for this country?

          Oh, gee and a study from the Cato Institute! How impartial can you get? Please… stop playing with yourself.

          • re: the infantile GOP.

            we’re a trillion in deficit EVERY YEAR and the GOP refuses to include DOD in the cuts (Romney promises even more spending)…

            so.. the Goobers say “cut” even if it does not come close to balancing the budget.

            it becomes an excuse for de-funding what they don’t like and forget about actually balancing the budget.. that’s a side issue.

            So Romney gets up in front of 70 million people and tells them he can INCREASE spending on DOD, cut the tax rate by getting rid of tax deductions and “growth” will balance the budget.

            and folks like AEI just parrot this pablum.

            no wonder the country is going to hell in a handbasket. The folks who say we spend too much .. want to spend even more.

          • You think THAT’S the problem? If all this were eliminated tomorrow, what do you think that does for this country?“…

            Why max old son, its at least a step in the right direction…

            Still as I note in the 2nd link that’s where the real problems lie…

            max once you and your fellow travelers start paying what Romney pays in federal taxes then the problem will become more manageable…

  3. Tax reform succeeded in the 1920′s, 1960′s and 1980′s and fostered very strong growth each time. The key is clearing out the thousands of special interest breaks and simplifying the tens of thousands of pages of tax code. Federal tax compliance is estimated to cost $300 billion per year, a pure waste of billions of man-hours.

    The “tax expenditures” are estimated at $1.1 trillion, nearly as much income tax as is collected. Chopping away at that $1.1 trillion would easily pay for a 20% rate reduction.

    Tax reform is a pure and obvious winner. The only reason liberals hate tax reform is to create yet another argument and diversion from their real problem – their economic record absolutely stinks, and they cannot talk about it or they will be annihilated again like they were in 2010. Conservatives ought to recognize and point out these silly distractions.

    • re: reforming the tax code.

      but if you use the savings from simplifying the code, getting rid of tax breaks to lower the overall tax rate and the effect of it is revenue neutral then how does that generate “growth” since all that you’ve done is take money away from those with the tax breaks and given it to those who benefit from lower rates?

      there is no “new” money – it’s just redistributed from those who used to have tax breaks to those who now benefit from lower rates.

      how does that generate more money flow in the economy? It’s just changing who is spending it but the amount in a “revenue-neutral” reform is the same.

    • Nonsense. And the seeds of the lunacy of this argument are in front of your face. You cut the top marginal rate from 90% to 70%, than 70% to 50%. The one to 28% didn’t work and we ratcheted up to 39.6.

      The joke is “when is this supposed to stop.” It is an article of faith- and a fraudulent one- that cutting taxes boosts revenues. If I follow this argument to its logical conclusion, we could cut taxes to zero and see a revenue boost.

      Forgive the obvious silliness of the example, but even the AEI voidoids have to figure there is a point of diminishing returns to deploying this, and I think we’re at this point now. You can’t cut every time there’s a slowdown without creating other problems.

      That shouldn’t be too hard to figure out.

    • ” Tax reform succeeded in the 1920′s, 1960′s and 1980′s and fostered very strong growth each time.”

      Even if I bought the cut taxes = strong growth – no matter what the marginal rate is or the budget requirements – you’re confusing cutting taxes and in theory the tax cut that is received is then going directly into the economy as investments or spending – THIS tax reform is EXPLICITLY “revenue neutral”.

      All you are doing is taking away money from those who exploit the tax code and giving it to others by lowering the marginal rate.

      this is no new money coming into the economy – just redistribution of tax breaks to a lowered marginal rate.

      But the other question is – if you are running a deficit already and you cut taxes, then you end up with an even deeper deficit if the “growth” fails to perform – as it did in Bush’s term.

      He cut taxes and we did not enough compensating growth to not go into deficit, much less produce a surplus.

      This stuff is ideological blather with no proven performance. It’s all based on belief and it has no Plan B if it fails.

      This is why we have such a stubborn deficit right now – the tax cuts did NOT generate more tax revenues. In fact, our tax revenues right now is the lowest in 60 years and we’ve added spending on DOD from 300 billion to almost 900 billion at the same time we cut taxes.

      That’s fundamentally irresponsible – to design a tax policy that has no Plan B if the policy fails to produce desired results.

      Again – this is more ideology than anything to do with reality.

      If this actually “worked” – we would not have gone from a surplus to where we are right now – which is a direct result of tax-cutting that did not work – and there was no plan B if it did not work.

      we need the people who think this way to not be elected leaders. Those guys have been a total disaster and their main response is “it worked before and no, we do not want to cut DOD”.

      where does that leave you?

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