Romney's Tax Plan Would Raise Taxes On The Middle Class, While Cutting Taxes On Wealthy
Fox News is trying to cover up the fact that Mitt Romney's tax plan would disproportionately benefit the rich and harm the middle class, as the nonpartisan Tax Policy Center has concluded. The Center found that Romney's plan would "provide large tax cuts to high-income households, and increase the tax burdens on middle- and/or lower-income taxpayers."
Tax Policy Center: Romney Tax Plan Increases Tax Burden On Middle, Lower-Income Americans
Tax Policy Center: Romney Tax Plan "Would Provide Large Tax Cuts To High-Income Households, And Increase The Tax Burdens On Middle- And/Or Lower-Income Taxpayers." A recent study by the nonpartisan Tax Policy Center concluded that Romney's plan would have to "provide large tax cuts to high-income households, and increase the tax burdens on middle- and/or lower-income taxpayers" in order to be "revenue-neutral":
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. [Tax Policy Center, 8/1/12 ]
Tax Policy Center: Romney's Tax Plan "Would Require Deep Reduction In Popular Tax Benefits" Like "Benefits For Low- And Middle-Income Families And Children." The Tax Policy Center study further found that to offset the $360 billion in revenue losses under Romney's tax plan, Romney would be required to make "deep reductions" in tax benefits such as "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":
Absent any base broadening, the proposed reductions in individual and estate taxes specified in Governor Romney's plan would decrease federal tax revenues by $360 billion in 2015.These tax cuts predominantly favor upper-income taxpayers: Taxpayers with incomes over $1 million would see their after-tax income increased by 8.3 percent (an average tax cut of about $175,000), taxpayers with incomes between $75,000 and $100,000 would see somewhat smaller increases of about 2.4 percent (an average tax cut of $1,800), while the after-tax income of taxpayers earning less than $30,000 would actually decrease by about 0.9 percent (an average tax increase of about $130) due to the expiration of the temporary tax cuts enacted in 2009 and extended at the end of 2010.
Offsetting the $360 billion in revenue losses necessitates a reduction of roughly 65 percent of available tax expenditures. Such a reduction by itself would be unprecedented, and would require deep reductions in many popular tax benefits ranging from 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. [Tax Policy Center, 8/1/12 ]
Experts Agree With Tax Policy Center Conclusion
FactCheck.Org: "We Don't See That" It's "Possible" For Romney Tax Plan Not To Put "A Greater Burden" On Middle-Income Taxpayers. FactCheck.org looked at Romney's tax plan and concluded that Romney "has failed to prove" that his plan will not put "a greater burden, or a larger share of a reduced burden, on middle-income taxpayers." FactCheck.org further noted that "we don't see that it is" possible for his plan not to burden the middle and lower income taxpayers "based on available evidence":
But Romney is not arguing that more jobs and growth should compensate for a tax system that puts a greater burden, or a larger share of a reduced burden, on middle-income taxpayers. He's promising that the share of taxes won't change. He has failed to prove that's possible. And based on available evidence, we don't see that it is. [FactCheck.org, 8/3/12 ]
Wash. Post: Romney Plan Disproportionately Benefits Wealthy In After-Tax Income. The Washington Post's Dylan Matthews created a chart using data from the Tax Policy Center report which demonstrated that if the Romney tax plan is paid for with tax break cuts, it would create significant increases to after-tax income for the top 0.1 percent, while the bottom 95 percent of taxpayers would see after-tax incomes fall:
The blue bars indicate how the plan would affect after-tax income if the rate cuts are paid for with tax break cuts, and the red bars show its effects without making up the lost revenue. The top 0.1 percent see incomes that are 8.6 percent higher without paying for the rate cuts, and 4.4 percent higher if they're fully financed. Meanwhile, the bottom 95 percent of taxpayers see incomes fall by 1.1 percent if the rate cuts are paid for by cutting tax breaks. [Washington Post, 8/1/12 ]
Wash. Post's Ezra Klein: "I Can Describe Mitt Romney's Tax Policy Promises In Two Words: Mathematically Impossible." In a Bloomberg View column, Washington Post columnist Ezra Klein wrote, "I can describe Mitt Romney's tax policy promises in two words: mathematically impossible." He continued, explaining how the Tax Policy Center analyzed Romney's proposal:
To help Romney, the center did so under the most favorable conditions, which also happen to be wildly unrealistic. The analysts assumed that any cuts to deductions or loopholes would begin with top earners, and that no one earning less than $200,000 would have their deductions reduced until all those earning more than $200,000 had lost all of their deductions and tax preferences first. They assumed, as Romney has promised, that the reforms would spare the portions of the tax code that privilege saving and investment. They even ran a simulation in which they used a model developed, in part, by Greg Mankiw, one of Romney's economic advisers, that posits "implausibly large growth effects" from tax cuts.
The numbers never worked out. No matter how hard the Tax Policy Center labored to make Romney's promises add up, every simulation ended the same way: with a tax increase on the middle class. The tax cuts Romney is offering to the rich are simply larger than the size of the (non-investment) deductions and loopholes that exist for the rich. That's why it's "mathematically impossible" for Romney's plan to produce anything but a tax increase on the middle class. [Bloomberg View, 8/2/12 ]
Tax Policy Center: Romney's Tax Plan Would Not Boost Economic Growth
Tax Policy Center: "Reasonable Models Would Show That These Tax Changes Would Have Little Effect On Growth." The Tax Policy Center's study explained that when you look at "reasonable models," Romney's tax plan would have "little effect on growth." Moreover, the study shows that "even with implausibly large growth effects", Romney's tax plan "would likely result in a net tax increase for lower- and middle-income households and tax cuts for high-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. [Tax Policy Center, 8/1/12 ]
Wash. Post: "Romney Tax Plan Won't Help Economic Growth." The Post's Matthews explained in a Wonkblog post that "if you make [Mitt Romney's] tax plan revenue-neutral by cutting deductions and credits" the economic growth effect caused by cutting taxes "goes away":
One of the many ways in which the Tax Policy Center's analysis of the Romney tax plan went out of its way to be fair to the candidate was its inclusion of "dynamic scoring." And when analysts used this method -- where, as Suzy explained, any economic growth caused by a tax change is considered when estimating its cost -- found that the plan would cause $53 billion in increased revenue.
That's nowhere near enough to offset its $360 billion annual cost, but still a substantial chunk of change. Given that tax revenue is expected to be 17.7 percent of GDP in 2015, the year for which these estimates apply (assuming current policy continues) and GDP is projected to be $15 trillion, this would mean the taxes caused $300 billion in economic growth, or a 2 percent increase.
That's a big number! Dynamic scoring is controversial, so it should be taken with a grain of salt, but for perspective, if the United States were growing 2 percentage points slower at the moment, we'd be in a recession. The problem is that if you make the tax plan revenue-neutral by cutting deductions and credits, that economic growth effect goes away. One of the best recent explanations of this was written by Alex Brill and Alan Viard of the American Enterprise Institute, who concluded that "base-broadening" reform of the kind Romney is proposing would not increase growth much at all. The reason: It doesn't remove the incentive to not work created by the income tax. [Washington Post, 8/2/12 ]
But Fox Attempted To Obscure Effects Of Romney Tax Plan
Fox's Kilmeade Suggested Romney's Tax Plan Would Not Benefit The Rich At The Expense Of The Middle Class. During the August 6 edition of Fox News' Fox & Friends, co-host Brian Kilmeade and Reagan administration economist Art Laffer suggested that the claim that Romney's tax plan would cut taxes for the rich "at the expense of the middle class" was not "the truth." From the show:
KILMEADE: [W]hen you talk about the message amongst both parties, about the middle class and the refrain from President Obama is Mitt Romney wants to become president to give himself a tax cut and do it at the expense of the middle class. What's the truth? What do the numbers really look like?
LAFFER: Well the truth is Jack Kennedy, which you showed right there, was a very wealthy family. He didn't cut the highest rate to help his family. He did it to help the country. Kennedy cut the tax rates across the board to stimulate. He cut government spending. He reaffirmed the dollar's convert ability to gold in May of 1962. And he did free trade, which is called the Kennedy round tariff negotiation. Every one of those is opposed to what Obama is doing. Obama is going just the opposite direction. And I just don't understand why the Democrats lost their play card. Why they don't really support what they used to be the champions of.
CAROL ALT: Art just really quickly, why you don't tell us why it's so important to have these tax cuts, what that would do to the economy. [Fox & Friends, 8/6/12]
Laffer Falsely Claimed Tax Cuts For The Rich Create An "Environment Of Growth." Later in the show, Laffer tried to hype the plan saying it would create an "environment of growth":
LAFFER: Basically what you really need to do is incentivize producers to hire people Carol. You need to create an environment of growth; prosperity and you cannot love jobs and hate job creators. And that's what's going on here is the president is really talking down business, talking all these regulations everything. Those are the people who create jobs output and employment; those people who make over $250,000 a year are the very people who employ the middle and lower class people and create those jobs. It's ridiculous to think those people will continue to provide jobs, output and employment if you raise their taxes, and you are raising their taxes. It's not giving them a tax cut. For ten years, those tax rates have been this way. Now they're going to pop them up on one small segment, the job creators. It's silly.
KILMEADE: And unfortunately, we're in the silly season when things couldn't be more serious. Art Laffer, economist extraordinaire, thanks so much for joining us. [Fox & Friends, 8/6/12]