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.