Even 5th Graders Know Mitt Won't Raise Taxes

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The Washington Tax Policy Center, a nongovernmental think tank, released a report last week purporting to show that Mitt Romney's tax plan would result in tax cuts for high income earners but increases for everyone else.

This finding was a distortion, if only for one reason: the Tax Policy Center did not analyze the Romney proposal as such, and more or less said so in the abstract to its paper. The Center imposed on the Romney proposal, the centerpiece of which is a 20 percent reduction in all tax rates, a constraint of its own: that the tax changes be "revenue neutral," that they neither raise nor reduce future revenues.

The Romney proposal contains no estimate of revenue consequences.

Major news organizations reported the Center's August 1 finding, namely that Romney's proposal would lead to tax relief for high-income filers and tax increases for everyone else. That is a conclusion imposed by the Center's own assumption of revenue neutrality.

Did the Tax Policy Center, sponsored by the Brookings Institution and the Urban Institute (both of which are research organizations with a center-left tendency) invite the news media, if implicitly, to misrepresent Romney's proposal?

Donald Marron, director of the Center, told me that he assumed the proposal was revenue neutral because of comments made by Romney in the past, even though he admitted that revenue neutrality is not part of the tax proposal. However, when organizations such as the Congressional Budget Office or the Joint Tax Committee analyze the effects of budget and tax legislation, they use written proposals, not sponsors' comments.

Had the Tax Policy Center been more meticulous, they would have offered in its paper, authored by co-director William Gale, Brookings senior fellow Adam Looney, and Brookings research associate Samuel Brown, the brief text of the Romney proposal. It is 110 words and can be found at www.mittromney.com/issues/tax. For readers' convenience, I reprint it here:

Individual Taxes

America's individual tax code applies relatively high marginal tax rates on a narrow tax base. Those high rates discourage work and entrepreneurship, as well as savings and investment. With 54 percent of private sector workers employed outside of corporations, individual rates also define the incentives for job-creating businesses. Lower marginal tax rates secure for all Americans the economic gains from tax reform.

* Make permanent, across-the-board 20 percent cut in marginal rates
* Maintain current tax rates on interest, dividends, and capital gains
* Eliminate taxes for taxpayers with AGI below $200,000 on interest, dividends, and capital gains
* Eliminate the Death Tax
* Repeal the Alternative Minimum Tax (AMT)

Curiously, the report never refers to the details of the Romney tax plan, although it does, in a sentence that inaccurately characterizes the plan, mention it in a footnote.

Most fifth graders could read this plan and see that it never once calls for raising taxes on anyone. Nor does the Romney tax plan call for giving tax cuts to high-income Americans before there are tax cuts for middle- and low-income Americans, as alleged by the Tax Policy Center.

In fact, low-and middle-income earners would get tax cuts that upper-income Americans don't have, such as a zero tax rate on income from dividends and capital gains. (Liberals will object that this is a first step down a slippery slope to exemption from taxes of all income from capital, but that is a topic for another day.)

The Tax Policy Center presents four tables, with many numbers. Not one of the tables is based on the Romney tax plan. The Center's document creates-and predictably knocks over-a straw man in the following way.

First, the Center claims that the tax plan must be "revenue neutral." This is not in the tax plan.

Then, the Center asserts that "the proposed revenue reductions from lower rates must be financed with an equal-value elimination or reduction in available tax preferences" such as "deep reductions" in such tax provisions as "the mortgage interest deduction, the exclusion for employer-provided health insurance, the deduction for charitable contributions, and benefits for low- and middle-income families and children like the EITC and child tax credit."

This is the Center's construct, not Romney's. I regard it as an argument invented to make Romney's tax plan look ridiculous. It is impossible to find these draconian provisions in the Romney plan.

Sloppy analysis and slipshod reporting are not uncommon in Washington. A document from the Tax Policy Center that is off the mark would not matter if no one paid attention to it. But it turns out that a lot of attention has been paid to the Center's review of what it imagines is Romney's tax plan.

President Obama cited the Center's document last week in speeches around the country, claiming that Romney would raise taxes on low-and middle-income Americans. At Rollins College in Florida, a battleground state, he said, "He's asking you to pay more so that people like him can pay less. So that people like me pay less."

The Tax Policy Center does not make the argument that the Romney plan would increase the deficit. The Center says it cannot calculate the deficit effect because the plan lacks details. Instead, they make a distributional claim that Romney's plan would raise taxes on lower- and middle-income Americans while reducing taxes on higher-income Americans.

That is the class warfare argument so popular among liberals. But that argument is patently false. Making the argument that Romney's tax plan would increase the deficit would draw attention to the high budget deficits in President Obama's tenure, in excess of $1 trillion a year for the past three years.

I have a suggestion for President Obama and for journalists who are looking for informed reviews of Romney's tax policy. Give Romney's 110 words to a fifth-grader. Ask that student whether the proposal would raise taxes or lower taxes. If you can locate a fifth-grader who can find tax increases in those 110 words-congratulations. You just found a future employee of the Tax Policy Center.

 

Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is senior fellow and director of Economics21 at the Manhattan Institute. Follow her on Twitter: @FurchtgottRoth.   

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