Shredding The Mitt's Tax Plan

The Mitt famously proposes to cut taxes by 20%, and to avoid increasing the deficit by closing “tax loopholes” to increase revenue. Equally famously, The Mitt refuses to describe exactly which “tax loopholes” will be closed. A lot of professional tax and economic analysts don’t think it can be done.

In the face of withering criticism from Josh Barro at Bloomberg, the Romney campaign sent an email to Barro, saying,

In fact, no fewer than six independent studies have confirmed the soundness of the Governor’s tax plan. Rather than wasting time trying to discredit the proposals of the Republican nominee, perhaps Mr. Barro and other journalists should investigate President Obama’s tax reform package. Or, more accurately, his lack of one.

Jonathan Burks
Deputy Policy Director
Romney for President

And Mr. Burks was kind enough to forward links to the “six independent studies.” Josh Barro’s review and analysis of the “six independent studies” is roughly what a Cuisinart™ does to cheese. It’s worth a read, but here’s the short version.

We’ll start with the conclusion that sparked all of the excitement. The Brookings Institute back in August published an analysis of The mitt’s tax plan, concluding

Our major conclusion is that a revenue-neutral individual income tax change that incorporates the features Governor Romney has proposed – including reducing marginal tax rates substantially, eliminating the individual alternative minimum tax (AMT) and maintaining all tax breaks for saving and investment – would provide large tax cuts to high-income households, and increase the tax burdens on middle- and/or lower-income taxpayers.

That’s how an economist says “won’t work.” Josh Barro reported all this, leading to his receipt of The Mitt’s “six independent studies.”

It turns out there aren’t any studies. There are four blog posts, a Wall Street Journal opinion piece and a paper from The Heritage Foundation.

Now WC likes to think he is a reasonably careful blogger but never, not on his smuggest day, has WC ever regarded his blog posts as “studies.” A study implies something besides an opinion and, as Barro points out, that’s really all those four blog posts offer. And as Barro demonstrates, the opinions are not well-informed.

For example, under current law interest earned on municipal and state bonds isn’t subject to federal income tax. Viewed in one way, that’s a “tax loophole.” It could certainly be terminated. But if local and state bonds were taxable, they’d have to pay a higher rate of return to attract investors. Probably about 25 – 30% higher. That would mean higher debt service – bond payments. Those payments are made by us. If the bonds went to a new water treatment plant, that would mean higher costs for water. If the bonds were for a bridge, it would mean higher tolls to pay for the bridge. The point is that closing that “tax loophole” doesn’t save the voters any money. It just forces them to pay more elsewhere.

Another example: under current federal tax law, mortgage interest is deductible to folks like you and WC. That reduces the amount of each mortgage payment by the product of your marginal tax rate multiplied by the interest you paid. Unless you are like The Mitt and only pay 13% tax rates, it’s going to be 20 – 30% saved. That allows you to buy a nicer home, because your payments are reduced by the tax savings. It’s a “tax loophole.”  Congress could close that loophole. But the effect would be to sharply reduce the price of the average home the average Joe or Jane could afford to buy. By about 20 – 30%. That would echo and re-echo through the already beleaguered housing industry.

The point here is that important sectors of our economy are built around the “tax loopholes” that are in the current tax laws. The loopholes can’t be “closed” to accomplish The Mitt’s claimed goal without serious, unintended side effects.

One of Josh Barro’s key points is that The Mitt’s “studies” fail to consider those unintended consequences. And, he points out, they also fail to acknowledge that you can’t inflict those kinds of massive shocks all at once; you have to phase them in over a few years.

Another of those key points is that The Mitt has seriously boxed himself in by promising that he won’t raise taxes on persons earning $200,000 or less. The higher the income bracket protected from a tax increase, the harder it is to explain. So hard, in fact, that two of the six “studies” set the line at $100,000. Oops.

It can’t be done. That’s the bottom line. There’s not enough tax revenue in the “loopholes” available to The Mitt under The mitt’s standards to make up for the revenue loss from the 20% tax cut. And that’s before you take into account the indirect effects described earlier.

And that’s the reason The Mitt refuses to identify specific tax loopholes. If he does, the conclusion would be obvious.

It isn’t just that The Mitt is playing high stakes poker with a busted flush. He doesn’t even have any cards. And yet there’s a serious risk this congenital liar and unprincipled robber baron will be elected president. As Adlai Stevenson reportedly said, “In America, anyone can be elected president. That’s just the chance you take.”

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