We are waiting for Martin Feldstein to correct the headline, the subhead, and the text on his Wall Street Journal op-ed. He needs to correct the arithmetic error that makes his $191B maximum possible revenue number, and state that it is not mathematically possible but mathematically impossible for Romney to keep all of his tax policy promises.
Remember: Glenn Hubbard, Greg Mankiw, John Taylor, and Niall Ferguson did themselves no good by doubling down when caught out.
Samuel Brown, William Gale, and Adam Looney bring the refreshments:
TaxVox » Blog Archive » Feldstein’s Analysis Doesn’t Refute TPC Findings, It Confirms Them: [W]e showed that any revenue-neutral tax reform that included Governor Romney’s specific tax cuts and that met his stated goal of not raising taxes on saving and investment would cut taxes for households with income above $200,000 and would therefore necessarily have to raise taxes on taxpayers below $200,000… even when we considered an unrealistically progressive way of financing the specified tax reductions, and even when we accounted for economic growth and revenue feedback…. Romney economic adviser Martin Feldstein attempts to contradict our finding… [but] confirms our central result…. [I]n Feldstein’s article, taxpayers with income between $100,000 and $200,000 would pay an average of at least $2,000 more….
Feldstein [also] employs several questionable assumptions that understate the revenue loss of Governor Romney’s tax cuts and overstate the revenue gains from reducing tax breaks and deductions…. Feldstein’s version of the Romney proposals would not be revenue-neutral; instead it would result in large revenue losses. Specifically:
He assumes that each dollar of itemized deductions lost by households with income above $100,000 would generate 30 cents in revenue. However, the Romney plan has a maximum tax rate of only 28 percent and most households with income above $100,000 would face an even lower rate on some or all of the additional income from eliminating deductions.
He assumes that taxpayers earning more than $100,000 who currently itemize would lose not only their itemized deductions but also their ability to take the standard deduction. Normally, taxpayers have the option of itemizing their deductions or taking the standard deduction. If the standard deduction were retained… and denying itemized deductions was assumed to raise revenue at the… [real] marginal tax rate of 24 percent under Romney’s plan, Feldstein’s proposals would fall about $70 billion short of revenue-neutral, even if taxpayers don’t change their behavior. However, JCT and Treasury estimates consistently show that the revenue generated by eliminating such deductions would be even lower because taxpayers would change their behavior….
Feldstein does not offer a specific way to pay for the costs of repealing the estate tax…. The estate tax raised $21 billion in 2009, and the JCT, CBO, and Treasury have consistently estimated that estate tax repeal would not only lose revenue but could actually lose more revenue than the listed estate tax revenues, because it would create opportunities for tax avoidance.
Taking the estate tax and other effects into account, Feldstein’s proposals come up at least $90 billion short of revenue-neutral….
Feldstein['s]… analysis reinforces our central finding…. Romney’s tax proposals… [cut] taxes on households above $200,000 and thus requiring net tax increases on households with less income…. Either taxes must rise on those with income below $200,000, or tax preferences for saving and investment will have to be reduced, or revenues will be cut, or promised tax cuts for high-income households will have to be reduced. Trade-offs exist and solutions are possible, but tax reform cannot do everything….
Finally, the debate over what is or isn’t possible distracts from the more important question of what the Romney plan actually is. The governor could settle this issue quickly simply by describing how he’d pay for his tax cuts.