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Brookings: The benefits of Romney’s tax plan mostly trickle up

Mitt Romney has a tax plan, sort of. It doesn’t contain enough details to be properly scored, the way the Congressional Budget Office would. But it has several principles, which have been part of the Repub talking points for quite a while.

Romney wants the system to be simpler and flatter and he wants the effect of his program to be revenue neutral. Simpler means eliminate deductions and credits, although Romney hasn’t specified all the loopholes he would close. Flatter means the distance between the top marginal rates and the lower ones would decrease. Revenue neutral means the revamped tax code would raise the same amount of money as the current code, so — although it won’t help with deficit reduction, it won’t make the deficit bigger either.

The Brookings Institution is out this morning with a study of whether and how that could be achieved. Their conclusion is that it can only end up as a tax cut for the rich and a tax hike for the middle class.

Now Brookings is a generally liberal think tank and the chief authors of this study have liberal and/or Democratic associations. So conservatives can easily ignore their findings, although plenty of conservatives have said that Romney’s plan doesn’t add up. Of course, it’s hard to add up a formula that has a lot of fill-in-the-blank-later components.

But the Brookings authors at least claim that they tried to make a number of what might be called charitable assumptions about ways that — within the parameters of Romoney’s key principles — the plan could be made more progressive. They just can’t make it work. Here’s the key section at the top where the Brookings report summarizes its findings:

“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. This is true even when we bias our assumptions about which and whose tax expenditures are reduced to make the resulting tax system as progressive as possible. For instance, even when we assume that tax breaks – like the charitable deduction, mortgage interest deduction, and the exclusion for health insurance – are completely eliminated for higher-income households first, and only then reduced as necessary for other households to achieve overall revenue-neutrality– the net effect of the plan would be a tax cut for high-income households coupled with a tax increase for middle-income households.

In addition, we also assess whether these results hold if we assume that revenue reductions are partially offset by higher economic growth. Although reasonable models would show that these tax changes would have little effect on growth, we show that even with implausibly large growth effects, revenue neutrality would still require large reductions in tax expenditures and would likely result in a net tax increase for lower- and middle-income households and tax cuts for high-income households.

It would be possible to reduce the regressivity of such plans or even to maintain progressivity in such plans with reductions in the tax rate cuts for high-income taxpayers and/or significant reductions in the tax preferences for saving and investment, including the preferential rates on capital gains and dividends.”

Politico already has talking points that Pres. Obama will use to publicize the new report.

Of course, perhaps Team Romney can rebut the Brookings finding by releasing more details of how they would make it work.

Comments (12)

  1. Submitted by Neal Rovick on 08/01/2012 - 10:09 am.

    Change and hope.Change the

    Change and hope.

    Change the tax structure to favor the wealthy even more and hope that it produces real economic growth.

    Try it for at least 3 decades–and then do it with Romney, again.

    At some point, change and hope becomes the “same old, same old” and indisputable failure.

  2. Submitted by Paul Brandon on 08/01/2012 - 10:15 am.

    Romney could also

    release a tax form showing how HIS income taxes would be affected by his proposals.

  3. Submitted by James Hamilton on 08/01/2012 - 10:57 am.

    You can’t make specific projections

    based on general principles and “charitable assumptions.” The fact is, until Romney presents a specific bill or detailed plan, there’s no telling who’s going to get which end of the stick or how deeply. On the basis of the overall Republican sales pitch, however, we can assume that taxes on the “job creators” won’t be going up.

  4. Submitted by Ray Schoch on 08/01/2012 - 11:05 am.

    Team Romney

    …will issue platitudes, which will be accepted by some people for ideological rather than factual reasons, since facts are in short supply regarding taxes and Republicans, and specifically the Romneys.

    Not since the days of the official “Robber Barons” in the late 1800s have we seen a presidential candidate so obviously of, by and for the plutocrat class. From offhand comments that he knows some NASCAR team OWNERS, though not drivers, to his wife’s ill-advised jab that “We’ve given you people all you need to know” about the family’s finances, this is a candidate of the 1 percent, and quite obviously dedicated to the continued welfare of that group over any and all other groups in the population.

    Them that has, gets. Them that don’t, don’t.

    It should come as no surprise to anyone that a tax plan devised by the party of the wealthy and advocated by the presidential candidate of the wealthy would – gosh, will you look at that? – benefit the wealthy disproportionately, while punishing the voters who are, curiously, most likely to support that same party and candidate. That any of the Republican “plans” for the economy should be taken seriously by just about anyone is testament to the mastery of propaganda increasingly exhibited by the right wing.

    Brookings may tend to the left, but unlike many sources quite a bit farther to the right, they’ve not divorced themselves completely from the rational and fact-based universe. Even if the Team Romney plan did not favor the wealthy, the fact that it’s revenue-neutral, and therefore does nothing to reduce the nation’s deficit, ought to be proof enough that Team Romney is not serious about the nation’s fiscal health.

  5. Submitted by Nathan Roisen on 08/01/2012 - 12:59 pm.

    Something for Nothing

    The notion that there can be a plan reduces tax burden the wealthy, eliminates deductions, and doesn’t increase the deficit is nothing more than a fantasy.

    The fact of the matter is, the government needs more revenue – not an equal amount, not less – in order to provide the services that Americans have decided that they want and need. As a percentage of GDP, tax collections are at their lowest level in decades, while many of the institutions and infrastructure that underpin our high quality of life are either having a demographic strain put upon them (Social Security & Medicare) or are reaching the end of their useful lives (highways, railways, bridges, airports, power grid, shipping ports).

    Republicans like to associate rising deficits as some kind of out-of-control cash-laden train wreck, but when you combine the unfunded wars and tax cuts from the Bush era with an aging population and the collapse in tax revenues from a painful recession, what you end up with is our current situation.

    What we need is a tax plan that allows increased revenues to offset the demographic shock of the baby boomers, and a spending plan that allows decreased military expenditures to offset an increase in investment in education and infrastructure.

  6. Submitted by Paul Udstrand on 08/01/2012 - 03:52 pm.

    Magic plans are the Republicans have produced for 40 years. Cut taxes and wait for the magic to happen. Let’s hope American voters have finally figure out that there is no such thing as magic.

  7. Submitted by Richard Schulze on 08/01/2012 - 04:54 pm.

    If Mr Romney wants to spare the middle class he will have to be much more generous than Bowles-Simpson when it comes to protecting their tax breaks. And there’s the rub: Mr Romney can be revenue neutral or he can spare the middle class but I don’t see how he can do both.

    The Romney plan is more or less a continuation of every other Republican tax plan: “if you cut taxes there will be more tax revenue”. If you care about the federal deficit and national debt, Romney isn’t your guy.

  8. Submitted by Harris Goldstein on 08/01/2012 - 09:05 pm.

    I think Romney is trying to walk the tightrope right now

    I don’t think Romney so much believes in his “plan” as a solution as he does a way to get elected. Then it’s really etch-a-sketch time.

  9. Submitted by Robert Hoppe on 08/02/2012 - 07:22 am.

    Reagan did it

    Yes, you can reduce tax rates and increase tax revenue to the government. Reagan did it and was promised spending cuts from congress that never happened.

    President Obama also agreed in this 2009 NBC interview.

    Well first of all he’s right. Normally, you don’t raise taxes in a recession, which is why we haven’t and why we have, instead, cut taxes” Obama told NBC’s Chuck Todd when Todd presented a question from a viewer named Scott who asked, “Explain how raising taxes on anyone during a deep recession is going to help with the economy any?”

    Obama then added, “What I have to say to Scott is his economics are right. You don’t raise taxes in a recession. We haven’t raised taxes in a recession….we have not proposed a tax hike for the wealthy that would take effect in the middle of a recession. Even the proposal that have come out of Congress, which by the way were different than the proposals I put forward, still wouldn’t kick in until after the recession was over. So he’s absolutely right. The last thing you want to do is to raise taxes in the middle of a recession.”

    The top 10% already pay 70% of Federal income taxes, what’s fair about that?

    The real problem is spending. Eliminate worthless Federal government agencies like the Dept. of Education, Energy Department, Dept. of Commerce, etc.

    The Tenth Amendment of the Constitution states “powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.”

    • Submitted by Neal Rovick on 08/02/2012 - 07:52 am.

      Regarding the Reagan tax cuts:


      The argument that the near-doubling of revenues during Reagan’s two terms proves the value of tax cuts is an old argument. It’s also extremely flawed. At 99.6 percent, revenues did nearly double during the 80s. However, they had likewise doubled during EVERY SINGLE DECADE SINCE THE GREAT DEPRESSION! They went up 502.4% during the 40’s, 134.5% during the 50’s, 108.5% during the 60’s, and 168.2% during the 70’s. At 96.2 percent, they nearly doubled in the 90s as well. Hence, claiming that the Reagan tax cuts caused the doubling of revenues is like a rooster claiming credit for the dawn.

      Furthermore, the receipts from individual income taxes (the only receipts directly affected by the tax cuts) went up a lower 91.3 percent during the 80’s. Meanwhile, receipts from Social Insurance, which are directly affected by the FICA tax rate, went up 140.8 percent. This large increase was largely due to the fact that the FICA tax rate went up 25% from 6.13 to 7.65 percent of payroll. The reference to the doubling of revenues under Reagan commonly refers to TOTAL revenues. These include the above-mentioned Social Insurance revenues for which the tax rate went UP. It seems highly hypocritical to include these revenues (which were likely bolstered by the tax hike) as proof for the effectiveness of a tax cut.

      Hence, what evidence there is suggests there to be a correlation between lower taxes and LOWER revenues, not HIGHER revenues as suggested by supply-siders. There may well be valid arguments in favor of tax cuts. But higher tax revenues does not appear to be one of them.

      (end quote)

      Take a look, there is a graph that illustrates the revenue argument.

      • Submitted by Robert Hoppe on 08/02/2012 - 01:27 pm.

        The era of big government is over.

        I carefully avoided stating that Reagan doubled the revenue to government, only that revenue can increase with tax cuts, or maintaining current tax rates. Growth of the economy is essential.

        Why should government confiscation of Americans’ income almost double every decade? I thought the era of big government ended in 1996.

        “We know big government does not have all the answers. We know there’s not a program for every problem. We have worked to give the American people a smaller, less bureaucratic government in Washington. And we have to give the American people one that lives within its means.

        The era of big government is over. But we cannot go back to the time when our citizens were left to fend for themselves. Instead, we must go forward as one America, one nation working together to meet the challenges we face together. Self-reliance and teamwork are not opposing virtues; we must have both. ”
        President Bill Clinton’s 1996 State of the Union Address.

        Also, it’s unpatriotic to run up the debt to almost $16,000,000,000,000. I know because President Obama said so in 2008.

        “The problem is, is that the way Bush has done it over the last eight years is to take out a credit card from the Bank of China in the name of our children, driving up our national debt from $5 trillion for the first 42 presidents – #43 added $4 trillion by his lonesome, so that we now have over $9 trillion of debt that we are going to have to pay back — $30,000 for every man, woman and child. That’s irresponsible. It’s unpatriotic.”
        Candidate Obama in Fargo, ND

  10. Submitted by Richard Schulze on 08/02/2012 - 06:17 pm.

    Red ink is the likely result of the Romney tax plan. That’s just math. Mr. Romney would either have to cut discretionary spending to Paul Ryan levels or take on even more budget-busting tax expenditures to square his numbers. Romney’s proposal to only eliminate the mortgage interest deduction on second homes shows how unwilling he is to throw out the whole thing. And that’s the third-biggest loophole in our loophole-laden tax code! Unless he’s considering scrapping the employer healthcare or pension contribution deductions, there’s not too many ways for him to make up for the revenue shortfall he’d bring about.

    Romney’s tax plan sends one clear message. He doesn’t really care about deficits.

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