Romney's Tax Plan Is Backward As Well As Vague

In a "Washington memo" that (rightly) takes Mitt Romney to task for the vagueness of his tax plan, New York Times reporters Annie Lowrey and David Kocieniewski report that "many economists" believe "tax breaks are inefficient and even distort the economy." As I've said before, to the extent that they aim to change people's behavior (as opposed to rewarding them for what they would have done anyway), the whole point of tax breaks is to distort the economy, although their supporters might prefer a less negative-sounding verb. Lowrey and Kocieniewski warn, for instance, that eliminating the deduction for home mortgage interest, which accounts for about one-tenth of the $1 trillion in annual "tax expenditures," could mean that "housing prices will plummet just as that sector of the economy is starting to recover." That is another way of saying that the mortgage interest deduction artificially inflates home prices by subsidizing purchases (just as below-market-rate student loans artificially inflate the price of higher education). Likewise, although the tax-free status of employer-provided health benefits (the biggest tax expenditure) came about almost by accident (driven by wage and price controls during World War II and subsequent IRS rulings), the Obama administration decided not only to retain this feature but to reinforce it with tax breaks for employers, with the explicit goal of encouraging more job-based medical coverage (exactly the wrong way to go if you want to enhance portability and strengthen price signals). What is this bizarre system in which most people rely on their employers for health insurance (but not, say, life, auto, or home insurance) if not a tax-driven distortion of the economy?

Lowrey and Kocieniewski argue that Romney cannot cut tax rates by 20 percent, as he has promised, while retaining popular deductions such as the one for mortgage interest (as he also has promised), and still keep the net effect revenue neutral (as he has said he will do). William Gale, director of economic studies at the Brookings Institution, tells them, "The combination of stuff they've specified is not only impossible; it is impossible several times over." On Meet the Press yesterday, Romney was asked for "an example of a loophole that you will close." The best he could do was this: "I can tell you that people at the high end, high-income taxpayers, are going to have fewer deductions and exemptions." Aside from its lack of specificity, Romney's approach seems backward to me. Serious reform should start by eliminating the deductions, credits, and loopholes that have made the tax code such a headache-inducing mess and only then ask how much rates should be lowered to keep revenue about the same.

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  • sarcasmic||

    Citizens! In all times, two political systems have been in existence, and each may be maintained by good reasons. According to one of them, Government ought to do much, but then it ought to take much. According to the other, this two-fold activity ought to be little felt. We have to choose between these two systems. But as regards the third system, which partakes of both the others, and which consists in exacting everything from Government, without giving it anything, it is chimerical, absurd, childish, contradictory, and dangerous. Those who parade it, for the sake of the pleasure of accusing all governments of weakness, and thus exposing them to your attacks, are only flattering and deceiving you, while they are deceiving themselves.


    -Bastiat

  • ||

    Bastiat was bereft of Hope.

  • Pro Libertate||

    I like where he was on government power, limiting it to what individuals have the right to do. Self-defense, sure. Stealing from some to give to others, not so much.

  • ||

    Jeez, why does Reason only keep attacking Romney? We GET IT, you're going to be sipping cocktails on the Orange Line with your liberal fellow Obama voters. SHEESH.

  • John Thacker||

    That's not what I see. I see plenty of attacks on Obama. And I have nothing to disagree with Jacob's conclusion about the proper way to reform taxes.

  • ||

    Maybe you should recalibrate your sarcasm detector.

  • SugarFree||

    Sarcasm is a librul plot!

  • Hugh Akston||

    I got my sarcasm detector at Wal-Mart. It cost $6.19 and lasted almost eight months.

  • SugarFree||

    Cheap Chinese crap no one needs!

  • Randian||

    Now I know you're lying. Sarcasm detectors at Wal*Mart are $5.88.

  • SugarFree||

    Sarcasm detectors at Wal*Mart are $5.88.

    RACE TO THE BOTTOM!

  • Hugh Akston||

    Dammit they rolled back the prices on me!

  • ||

    I'm getting a little tired of your glib attitude, NutraSweet. You're not taking the most important election of our lives seriously at all!

  • SugarFree||

    Suck it, jerknugget.

  • ||

    See? See? This is what I'm talking about.

  • Randian||

    Put that in your McMansion and smoke it!

  • ||

    Don't forget the most partisan. And the most cynical. And the most mean. And the most...

    Oh, and it's not just in our lifetimes. It's in the history of the Universe.

  • ||

    Glad I could spawn such a vigorous sub-thread that is truly awe-inspiring in the number of posts made without a single cogent point or remark of substance to ruin it.

  • Randian||

    We try not to disappoint.

  • Hugh Akston||

    Am I correct in thinking that "tax expenditure" is Newspeak for "not bilking taxpayers as hard as you could"?

  • sarcasmic||

    not taking = giving

    So if I don't put a gun in your face and demand the contents of your wallet, I am actually giving you the contents of your wallet.

    Tony said so.

  • SugarFree||

    And if you leave your house without a wallet, you should be put in jail.

  • John Thacker||

    Taking from everybody but then taking less from people who do what their government masters want isn't good behavior either, though, and in a lot of ways it's worse than fairness.

    If the tax code had a "$5000 tax credit for people who vote for Obama," then you'd wholeheartedly cheer that as "letting people have more of their money" and fight efforts to get rid of it in a revenue neutral way?

  • John Thacker||

    "Tax expenditure" is a term for "a tax deduction that is aimed at rewarding certain people or politically connected behavior and is thus functionally equivalent from spending on them, since it has to be paid for otherwise."

    For extreme examples, imagine that public employees, but no one else, were suddenly exempt from all state and federal taxes. Would libertarians be cheering that?

    They're particularly notable when they're refundable credits, namely ones that can drive overall tax burden below zero.

    Tax credits for buying an electric car, as opposed to direct expenditures for an electric car. They're pretty similar to me.

    Social engineering through the tax code, favoring your allies and all, is certainly something that exists. People argue about how their deductions are real, though, and some do make sense. (For example, you can make a good case about resource extraction companies being able to deduct tax-like but not coded as tax fees paid to foreign governments and foreign government owned corporations.)

  • Hugh Akston||

    That's a whole lotta words to not answer my question.

    I was asking whether the authors (including Jacob) were conflating the concepts of spending and not-taking under the term "tax expenditure."

  • Randian||

    My favorite are the "tax credits" (EITC) where the government gives YOU money.

    That isn't what credit means, to my mind.

  • John||

    That is a good explination for a lot of the trouble we are in. The problem is over the last 30 years Republicans have wanted to cut taxes and Democrats have wanted to raise taxes. So what they did was compromise and cut taxes for "the middle class and poor". Who doesn't love that? Why shouldn't the working guy get a break? Well that sounds great. And considering how horrible the tax code was in the 70s, it wasn't a bad idea. But like everything, it has a limit and a limit we passed sometime in the 1990s. Now we have a situation were over half of the country pays no income tax beyond FICA and medicare. And that is completely fucked up and unfair. And course we have any number of enormous market distortions created by every Congress critter cutting deals for their favorite constituency or political sacred cow like parents and home owners.

    The insanities are endless. You can get a tax deduction for owning a vacation or rental home, but are strictly limited in what you can deduct of student loan interest.

  • ||

    Weren't you listening to Obama's DNC speech? Republicans want to recklessly spend by cutting taxes. Not taking is spending. Yes, this is actually what politicians say nowadays.

  • SugarFree||

    Imagine the outlandish shit you'd say if I knew no one was ever going to call me on it?

  • ||

    Since when do people call you out for the shit I say?

  • ||

    Is this the Borg?

  • SugarFree||

    See what I mean?

  • ||

    It's your fault he said that, heller.

  • ||

    Human inefficiency. 7/9.

  • SugarFree||

    Blanket party

    Your beatings will continue until my morale improves.

  • ||

    Resistance is futile.

  • T||

    My morale would improve greatly if the right people were getting beaten.

  • SugarFree||

    T, please keep your violent masturbatory fantasies to yourself.

  • ||

    You can't simplify the tax code, Jacob! Think of all the tax preparers, IRS employees, tax attorneys, and CPAs that would be out of work! The unemployment rate would skyrocket. Well, skyrocket more.

  • Brutus||

    We could send all of the laid-off IRS agents out to dig holes, and then the rest of the unemployed to go fill them in. Makes as much sense as what we do now.

  • Drake||

    Romney's tax plan is to sign a tax reform deal if Republicans take Congress and pass one. And to veto tax increases if the Democrats were to pass one. Any more detailed a plan is nothing but talking points for a Presidential candidate.

  • The Late P Brooks||

    "many economists" believe "tax breaks are inefficient and even distort the economy."

    No

    fucking

    shit.

    I can't remember who it was, but yesterday one of the Presidential Ballwashers was yammering about the awesomeness of His Zeroificness' targeted "Hire THIS guy, not THAT guy" tax bribes.

    Gross receipts tax (2% max). After that, you make your decisions based on fundamental economic return. Scary, I know.

  • Emmerson Biggins||

    inefficient at what?

    this implies some way of measuring efficiency. This implies we all know,or agree on what the goal is. But that isn't true. The statement that a "tax break break is inefficient" all by itself is 100% meaningless, and is begging some unstated question.

    tax breaks distort the economy

    All taxes distort the economy. Modifying how those taxes work, of course distorts the distortion. So this is a 100% true and 100% useless statement.

  • Ken Shultz||

    to the extent that they aim to change people's behavior (as opposed to rewarding them for what they would have done anyway), the whole point of tax breaks is to distort the economy,

    I think there are a lot of people who support tax breaks, not because they support changing people's behavior, but because they think the lower the level of taxation we have, the better.

    So, any tax break is a net good if it brings the total level of taxation down. I'm not sure they're wrong about that.

  • R C Dean||

    So, you'd support tax breaks for pubsec employees, minorities, and women, but not for white men employed in the private sector?

  • Ken Shultz||

    Here's what I'm saying...

    He mentioned the interest deduction on housing. Here's another angle to that...

    Take Prop 13 in California. There have been a lot of people calling to get rid of Prop 13 for years, especially on the left. They think that amid California's budget problems, it's insane not to be able to raise taxes on people's homes...

    But if the state of California were able to tax people's homes for significantly more, would that really solve California's budget problems? It seems to me that California would have blown through all of that Prop 13 money too--if it had been available. California's problem isn't that it doesn't tax enough--it's that it spends too much.

    Maybe, at the federal level, the interest rate deduction would be different if it were repealed. Maybe if Congress got its grubby hands on all that money locked away in higher home prices, they wouldn't squander it on useless things, and they'd just pay down the debt!

    But I wouldn't count on that.

    ...

  • Ken Shultz||

    ...

    So, it seems to me that we'd be trading one bubble for another, and I'd rather have higher equity values in private homes--than more spending from the federal government. Anything we can do to keep from inflating the bubble in government spending at this point is probably a net good--even if it distorts something or other. And if getting rid of the interest rate reduction would result in hundreds of billions more dollars leaving private hands and being spent by the government?

    Then I think I'd rather have the interest rate reduction keeping home prices artificially high, thank you.

  • ||

    I would argue that Tax Cuts are not Tax Breaks. Cuts in the marginal rate are broad based and accomplish no specific goal beyond general tax burden lowering and possible economic expansion. Breaks, on the other hand, are specifically targeted tax policy whose reasoning is beyond more simple cuts.

  • Ken Shultz||

    Broad based tax cuts are extremely difficult to get because the wealthy pay such a high percentage of total tax receipts, that any cut in taxes across the board is necessarily advantageous to the wealthy disproportionately.

    So, what are you going to do? Only slash taxes for people who make less than $75,000 a year? If so, well now you're playing favorites and creating distortions, aren't you?

    Tax cuts are like markets, and in my business, markets tell me what I can do. They tell me how much I can sell and at what price. And if right now, the market will only let me sell tax cuts that are targeted at doing something perceived as being in the public good?

    Then that's better than having no tax cut at all.

    The point is to minimize the amount of resources consumed by government, is it not? The reason overspending by government is bad is because the taxes (and inflation) it generates start to squeeze money out of the private sector and into the hands of the government.

    If we want as small a government as is beneficial, then we need to take whatever cuts the market for ideas will give us at the moment. I'd rather those cuts were broad based and across the board, too. But if that's not what the market will tolerate? then that's hardly a reason to give the government a larger share of the economy.

    Even if giving the government a greater share of the economy in order to alleviate some smaller market distortion maybe won some some tiny battle--we'd be losing the war.

  • ||

    My point is that any particular Tax Break is chosen for it's distortive effects. It's not chosen for it's general economic impact.

    Yes, there is a general impact. And it's likely a net positive in that it reduces the government till. Bull it's sold on its distortive particular, not on its general ability to reduce taxes.

  • Ken Shultz||

    Yeah, but that's back to my point...

    If you can only get other people to support a tax cut with a specific target, then what are you supposed to do?

    Suffer a higher level of taxation?

    Or take whatever tax cuts you can get whenever you can get them?

    If people will only support tax cuts for installing solar panels, building homeless shelters, and buying cars?

    Then that's better than the alternative if the alternative is no cut in the level of taxation at all.

    If the market wanted to pay me twice as much as it does right now for office buildings, I'd put up tons of office buildings! But right now, in my market, they're paying a lot less for office buildings--sometimes less than it costs to build them! So, I'm not building any office buildings at all...

    Right now, the option where we slash taxes all the way across the board? That isn't one of the options. Certainly not while Obama is still in the White House! There's no way he's gonna sign a bill like that.

    So what are we left with?

    Doing the best we can. And right now, we're way overtaxed. We gotta slash taxes somehow. I'm certainly not gonna support getting rid of a tax break we have--just in the name of equalization. ...not so long as the government continues to consume so much of our economic output.

  • Randian||

    Rule of law is more important than a 1% tax break on one corporate entity.

  • John Thacker||

    So, any tax break is a net good if it brings the total level of taxation down. I'm not sure they're wrong about that.

    I am not convinced that all of these targeted tax breaks actually bring the total level of taxation down, instead of just shifting it from preferred groups to less preferred groups. Many of the individual states with the highest amount of target tax breaks also have high overall rates.

    Even if it did bring it down, I'm sorry, I would have trouble supporting a lot of these social engineering tax breaks or blatant favoritism.

    But it is interesting that they would be supportive of exemptions from tax for public employees, tax credits for being the proper race, or a tax credit for voting for Democrats.

  • Ken Shultz||

    If someone convinces me that the money the government gets from getting rid of such tax breaks would go to pay down the deficit?

    Then I might agree with you.

    Keynes said (more or less) that we can depend on the government to spend every dime it gets in times of perceived difficulty, and he was right about that--wasn't he?

  • R C Dean||

    How hard would it be for him to say "I will push for tax reform that repeals every tax credit and deduction except for home mortgage, personal, and charitable deductions. The increased revenue from this repeal will be offset by lower rates. If I get my way, we can lower rates by X%. Every loophole, special deal, and deduction that isn't done away with will mean we can't cut rates by as much as I want."

  • Tman||

    I think it's what he's been trying to say -that he wishes to eliminate every possible special loophole out there- but when it comes out in plan form the devil apparently is in the details.

    Clearly there is much wanting from Romney's plan, but even if he said what you proposed RC I'm not sure I'd believe him anyways.

  • R C Dean||

    I think it's what he's been trying to say

    I don't, because I believe in his hard, crony-capitalist heart, he has no intention whatsoever of doing away with the special deals for his friends.

  • Tman||

    I will disagree based on his performance in Mass as governor. He was actually pretty solid about eliminating tax breaks from loopholes as Governor.

    For the next three years, the Romney administration relentlessly scoured the tax code for more loopholes, extracting hundreds of millions of corporate dollars to help close budget gaps in a state with a struggling economy. It was only after Mr. Romney was gearing up in 2005 for a possible White House bid that he backed away from some of his most assertive tax enforcement proposals amid intensifying complaints from local companies and conservative antitax groups in Washington.

    Mr. Romney’s campaign against the tax loopholes, like no other period in his career, put him at odds with the values and expectations of the corporate world from which he came. Today, in seeking the Republican presidential nomination, Mr. Romney promotes himself as the pro-business candidate who understands what companies need and how to create jobs.

    http://www.boston.com/news/pol.....?page=full

  • R C Dean||

    I did not know that.

    I'm impressed.

  • John Thacker||

    Hard theoretically?

    Or hard given who he is, and his strategy (right or wrong, and frighteningly plausible given how swing voters react) for trying to win the Presidency?

  • Randian||

    It's one hell of a 'strategy' that constantly has you 2-5 points down on your opponent.

  • AlmightyJB||

    When's the last time you've seen a candidate give specifics on their proposals. They're purposely vauge. That will continue in the debates. Mitt will be asked for specifics whenever he answers a question, and he will reply with more vaugeness. The one will be asked how he balances his awesomeness with his keen intellelect and will answer with platitudes.

  • The Late P Brooks||

    Also, there are those who say "RAYGUN DEFICITZ!111!!"

    They leave out the part where there was a Congressional "deal" to lower spending which went poof after the tax laws were changed.

  • John Thacker||

    Which is, of course, exactly the reason why libertarians, Tea Partiers, and even Congressional Republicans are less willing to trust the old "give me a tax increase today for a promise of spending cuts in the future" bargains that keep coming up.

  • Pro Libertate||

    Cut spending. A lot. After that, some tax reform would be nice.

  • The Late P Brooks||

    Since when do people call you out for the shit I say?

    Are you from Missouri? Because I think I got called out for some shit that guy said.

  • The Late P Brooks||

    I am not convinced that all of these targeted tax breaks actually bring the total level of taxation down, instead of just shifting it from preferred groups to less preferred groups.

    Exactly.

  • The Late P Brooks||

    Think of all the tax preparers, IRS employees, tax attorneys, and CPAs that would be out of work!

    And the real estate salesmen! Oh, the horror.

  • ||

    Did you know that the dream of home-ownership is being threatened?

  • John||

    The only way to ensure the dream of home ownership for all is to ensure that home prices rise above the rate of inflation forever!!

  • The Late P Brooks||

    Did you know that the dream of home-ownership is being threatened?

    "Fucking ordinary people. I hate 'em."

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