Mitt Romney's campaign says I'm full of it. I said Romney's tax plan is mathematically impossible: he can't simultaneously keep his pledges to cut tax rates 20 percent and repeal the estate tax and alternative minimum tax; broaden the tax base enough to avoid growing the deficit; and not raise taxes on the middle class. They say they have six independent studies -- six! -- that "have confirmed the soundness of the Governor’s tax plan," and so I should stop whining.
Let's take a tour….
[T]hey are perhaps more accurately described as "analyses," since four of them are blog posts or op-eds. I'm not hating -- I blog for a living -- but I don't generally describe my posts as "studies." None of the analyses do what Romney's campaign says….
The Tax Policy Center paper that sparked this discussion found that Romney's plan couldn't work because his tax rate cuts would provide $86 billion more in tax relief to people making over $200,000 than Romney could recoup by eliminating tax expenditures for that group. That means his plan is necessarily a tax cut for the rich, so if Romney keeps his promise not to grow the deficit, he'll have to raise taxes on the middle class….
[G]etting from $86 billion down to $0 is not enough to make Romney's proposal work…. [H]e actually needs a substantial surplus of a high-income base broadening above the cost of his high-income rate cuts…. There are only meaningful "alternatives" to discuss with Congress if Romney can pick and choose from a pool of tax preferences for the wealthy that far exceeds the $250 billion annual cost of his rate cuts for them. If the pool of available base broadeners is just large enough to finance his tax cuts, then Romney actually is dictating a plan to Congress…. TPC finds that Romney's rate cuts, plus elimination of the estate tax and Alternative Minimum Tax, would cost the Treasury about $250 billion in revenue from high earners. If he could somehow find, say, $300 billion in base broadeners from the wealthy, $15 billion of which would have to go to a phaseout, that wouldn't leave a lot of "alternatives" on the table. Yet there aren't enough base broadeners for Romney to reach the $300 billion level, let alone exceed it.
Now, on to the six studies.
The strongest of the six analyses is actually one of the shortest: An October 1 blog post from Alex Brill at the American Enterprise Institute. Brill chips away at the $86 billion figure…. [But] this leaves Brill about $32 billion short of closing the deficit in the TPC report. Since he also needs about $15 billion to structure a phaseout and tens of billions more to allow Romney to offer a real menu of options to Congress, Brill is well short of "confirming the soundness" of the Romney tax plan…. [C]laims about growth induced by tax policy changes are often overstated -- remember, the 2001 and 2003 tax cuts were also sold on the promise of higher economic growth offsetting much of the revenue loss. It didn't happen.
The second analysis the Romney campaign cites is an August 9 blog post by Brill's colleague, Matt Jensen. Jensen didn't actually claim that Romney's tax plan was sound…. He… suggested that Romney might use a lower threshold than $200,000 for "high income," but Romney later excluded that possibility in an interview with ABC News….
The Romney camp cites two analyses by Martin Feldstein… allows for tax increases on people making more than $100,000. But on Sept. 14, Romney told ABC's George Stephanopoulos that he would hold people making less than $200,000 or $250,000 harmless…. The Romney campaign, therefore, is dishonest in saying Feldstein's analyses "confirm the soundness" of Romney's tax plan. Feldstein is analyzing a different tax plan….
Next up is a paper by Curtis Dubay… municipal bond interest, life insurance and economic growth… capital gains tax treatment on estates… "step-up"…. Dubay says this would raise $19 billion annually from people earning over $200,000. But that's wrong…. I have not seen an estimate of the revenue impact of moving to carry-over basis at death, but it would surely be much less than the revenue impact of forcing the realization of capital gains at death.
Finally we have Princeton's Harvey Rosen…. Rosen… does not include revenue loss due to repealing the estate tax and the Alternative Minimum Tax. And he makes very aggressive assumptions about dynamic effects… depending on rosy -- and not necessarily warranted -- economic assumptions to make the numbers pencil.
There you have the six "studies" on which the Romney campaign has based its defense of Romney's tax plan. Individually and collectively they fail….
Finally, I would note one item that the Romney campaign does not cite in support of its tax plan: Any analysis actually prepared for the campaign in preparation for announcing the plan in February. You would expect that, in advance of announcing a tax plan, the campaign would commission an analysis to make sure that all of its planks can coexist. Releasing that analysis now would be to the campaign's advantage, helping them put down claims like mine that their math doesn't add up.
Why don't they release that analysis? My guess is because the analysis doesn't exist, and the 20 percent rate cut figure was plucked out of thin air for political reasons without regard to whether it was feasible.