Martin Feldstein wrote last Wednesday that Romney had not made six impossible promises before breakfast:
Mitt Romney's plan to cut taxes and offset the resulting revenue loss by limiting tax breaks has been attacked as "mathematically impossible." He would reduce all individual income-tax rates by 20%, eliminate the Alternative Minimum Tax and the estate tax, and limit tax deductions and loopholes that allow high-income taxpayers to reduce their tax payments. All this, say critics, would require a large tax increase on the middle-class to avoid raising the deficit.
We pointed out that that Feldstein's defense was, as a matter arithmetic, simply false: there are not enough tax deductions and loopholes for Romney to keep his promises, and the only reason Marty thought there were was that he had made an arithmetic error.
Today Martin Feldstein agrees that he was wrong, well, it's not clear what he is saying:
Greg Mankiw's Blog: A Reply from Martin Feldstein: I am happy to lend this space to my Harvard colleague Martin Feldstein. -- Greg
This note is a reply to those who commented on my August 28 WSJ article (available here) about the Romney Tax Plan. The Romney income tax plan includes a 20% cut in all individual tax rates, eliminating the AMT, and eliminating the taxes on interest, dividends and capital gains for those with incomes under $100,000. The resulting revenue loss is balanced in the plan by broadening the tax base for high-income taxpayers. The Tax Policy Center (and others citing their report) claimed that the Romney plan is “mathematically impossible”….
For the WSJ article I analyzed the most recent published IRS data (for 2009). The cost of the Romney proposed tax cuts would be $219 billion in that year with no behavioral response (the “static estimate”) or $186 after a $33 billion reduction in cost caused by the behavioral response to lower marginal rates…. I multiplied the $636 billion by a 30 percent marginal tax rate for the high-income taxpayers [with AGI above $100,000/year], implying $191 billion of extra revenue…. The critics of my WSJ piece raised 4 objections: (1) The 30 percent marginal tax rate is too high….
While I still believe the assumptions that I used in my analysis…
No! No!
If the maximum marginal tax rate is 28%, you cannot cut $1 of itemized deductions and increase revenue by 30 cents. It is not possible. The assumption that you can is not believable.
There is a difference between making a calculation error in an initial piece, and claiming that you "still believe the assumptions" after the error has been pointed out…
