This is the first rule of Republican politics: If you are in trouble, promise to cut taxes. The second rule is similar: If you are in trouble and you have already promised to cut taxes, say you will cut them even more.
Speaking to what may have been the smallest crowd in the history of Ford Field, the home of the Detroit Lions, Mitt Romney today followed the second rule. Revising the fifty-nine-point economic plan he unveiled last September, which proved about as inspiring as an old C-SPAN tape, the Mittster promised to slash income-tax rates by a fifth. Under his new proposal, the top rate of thirty-five per cent would be slashed to twenty-eight per cent; the second top rate of thirty-three percent would be cut to twenty-six percent; and so on down to the bottom rate of ten per cent, which would be reduced to eight per cent.
Channelling Ronald Reagan, Arthur Laffer, George W. Bush, and other patron saints of supply-side economics, Romney declared, “By reducing the tax on the next dollar of income earned by all taxpayers, we will encourage hard work, risk-taking, and productivity by allowing Americans to keep more of what they earn.”
Romney didn’t completely junk his old plan, in which he had pledged to cut the tax rate on corporate profits from thirty-five per cent to twenty-five per cent, abolish the inheritance tax, and maintain Bush’s fifteen-per-cent rate on capital gains and dividends—and abolish it completely for people who earn less than two hundred and fifty thousand dollars a year. All these costly giveaways hold over to his new plan, where they have been supplemented with an across-the-board proposal to slash income taxes.
If you recall some of your grade-school arithmetic classes, where adding two negative numbers together gave you a larger negative number, you might suspect that cutting taxes for workers, businesses, investors, and dead people would produce a bigger gap between revenues and spending. This is the arithmetic that non-partisan budget experts are using when they estimate that Romney’s tax proposals would cost the U.S. Treasury somewhere between $4 trillion and $6 trillion over the next decade. But it’s also a misleading and unreliable type of arithmetic—according to Romney, anyway. “These changes will not add to the deficits,” he said with an impressively straight face. “Stronger economic growth, spending cuts, and base broadening will offset the reductions.”
The first part of Romney’s new arithmetic relies on the familiar supply-side argument that cutting taxes encourages people to work harder and save more, which boosts economic growth, which generates higher tax revenues. These things can sometimes happen, but almost never to the extent that Republicans claim. In the absence of detailed projections—his campaign hasn’t supplied any—it isn’t clear how far Romney is exaggerating the impact on growth and revenues of his proposals, but the gap between plan and reality is probably considerable.
Some of Romney’s spending proposals are reasonable. He wants gradually to increase the eligibility age for Medicare and Social Security, and to trim the benefits that upper-income retirees receive. Over the long run, these measures could have a big impact on the deficit. But the chances of them getting through Congress are slim to none. And even if Congress did somehow summon the will to defy the A.A.R.P., the reforms to Social Security and Medicaid wouldn’t have much immediate impact, which means Romney has had to look elsewhere in his desire to limit federal spending to twenty per cent of G.D.P. by 2016.
As of today, federal spending is running at more than twenty-four per cent of G.D.P. To get that figure down, Romney is proposing to abolish some federal programs, such as Obamacare; slash others, such as Medicaid and Amtrak; and cut the wages of federal employees. Here, too, though, he hasn’t provided any detailed projections.
Finally, there is “base broadening.” This is the Washington jargon for eliminating tax breaks, such as the mortgage interest deduction, the deduction for charitable giving, and the deduction employers get for providing medical insurance. If Romney were indeed serious about eliminating all of these tax breaks, it might well be possible for him to trim tax rates without raising the deficit. But, of course, he isn’t serious.
In his speech today, he said, “Middle-income Americans”—i.e., most taxpayers—“will continue to enjoy tax benefits that favor important priorities, including home ownership, charitable giving, health care, and savings.” The trimming or elimination of tax breaks will be confined to “higher-income Americans. Those who receive the greatest benefit from rate cuts will see the most significant limits.” This suggestion adds a welcome element of progressivity to Romney’s plan, although overall I would guess it remains pretty regressive. But allowing most Americans to keep their tax deductions severely limits the amount of revenues that could be raised through this type of reform.
Simply put, you can’t give the entire country a big tax break and pay for it simply by taking a few goodies away from the very rich. Romney’s economic team, which includes Columbia’s Glenn Hubbard and Harvard’s Greg Mankiw, knows this perfectly well. To put the best possible face on it, the new Romney plan represents his opening gambit in the renewed debate, which the Simpson-Bowles commission sparked, about how to simplify the tax system—flattening marginal rates while raising the same amount of revenue, or even more.
At this stage in a Presidential campaign, however, politics trumps economics. Neither Romney nor anybody else (President Obama included) wants to tell ordinary American families that a couple of years from now they might no longer be allowed to deduct all of their mortgage interest payments, or their charitable donations, from their taxes. Hence the carefully targeted nature of Romney’s proposals.
Taken overall, though, his new plan goes well beyond tactical positioning. In promising yet another big round of tax cuts while simultaneously trying to depict the President as a feckless fiscal degenerate, someone who couldn’t balance his own checkbook, let alone the federal budget, Romney doesn’t merely come across as irresponsible. He looks desperate.
Photograph by Scott Olson/Getty.
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