Election 2012

Romney's Middle Class Problem

The GOP presidential candidate's tax plan is vague, backward, and possibly impossible.


During last week's presidential debate, Mitt Romney repeatedly promised to "lower taxes on middle-income families" without reducing "the share paid by high-income individuals." But this combination will prove difficult, if not impossible, for the Republican candidate to deliver given the other elements of his tax reform plan—especially his illogical definition of "middle-income families."

Romney's basic idea, which in broad outline has bipartisan support, is to "lower tax rates" and "broaden the base" by reducing deductions, credits, and exemptions. He proposes cutting individual income tax rates by 20 percent, so that the top rate would be 28 percent rather than the current 35 percent and the bottom rate would drop from 10 percent to 8 percent. He also wants to abolish the estate tax, repeal the Alternative Minimum Tax, and eliminate taxes on interest, dividends, and capital gains for taxpayers earning less than $200,000.

Since Romney insists "there'll be no tax cut that adds to the deficit," he needs to make up for the lost revenue by cutting back on tax breaks, and he is committed to doing so without increasing the burden on "middle-income" households, shrinking the share of taxes paid by "high-income" households, or reducing the tax code's incentives for savings and investment. According to a widely cited August report from the Tax Policy Center (TPC), a joint project of the Urban Institute and the Brookings Institution, this task "is not mathematically possible," a point that President Obama emphasized during the debate.

The Romney campaign dismissed the TPC's "biased study," saying it failed to take into account "the positive benefits to economic growth" from his deficit reduction plan and his proposed cut in the corporate income tax. If those changes boost economic output, tax revenue will increase, reducing the amount that needs to be raised by closing loopholes.

As usual, however, Romney did not show his math. He did not even estimate the magnitude of those "positive benefits" (as opposed to negative benefits?) so people could judge whether he was being realistic. More crucially, he has never specified which deductions he would scale back or abolish, and his plan to restrain spending is mostly a mix of penny-ante items (e.g., the $146 million National Endowment for the Arts, which Romney would not even eliminate) and wishful thinking (e.g., $60 billion a year saved by controlling "waste and fraud").

Sympathetic economists such as Harvey S. Rosen of Princeton and Martin Feldstein of Harvard provided much more substantive responses to the TPC report, arguing that a tax reform plan similar to Romney's could indeed work. Their analyses differed from the TPC's in various ways, including the tax data they used (historical vs. projected), their assumptions about how tax reform would affect economic growth, and the deductions they deemed to be "on the table."

But the most important factor in all these studies seems to be the definition of "high-income" vs. "middle-income" households. The TPC used a cutoff of $200,000, while Rosen and Feldstein preferred $100,000. (Rosen also ran the numbers based on the higher threshold, with results considerably less favorable to Romney.)

As The Washington Post's Dylan Matthews pointed out, the broader definition of middle-class households is counterintuitive, to say the least, since it applies to 96 percent of Americans. The narrower definition, by contrast, makes sense if the middle class corresponds to the middle fifth of household incomes. The problem for Romney is that he (like Obama) uses the broader definition, which is politically useful but fiscally inconvenient.

Similarly, Romney's lack of specificity avoids the risks of identifying which popular deductions he would target, but at the cost of letting his critics fill in the details. More important, his plan is backward as well as vague. Serious reform would start by eliminating the arbitrary, meddlesome, and economically distorting complications 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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  1. Romney’s basic idea, which in broad outline has bipartisan support, is to “lower tax rates” and “broaden the base” by reducing deductions, credits, and exemptions.

    No one removes pages from the United States Tax Code, they only add to it. I don’t know why we’re talking about any tax reform like it could happen. How long has Washington been kicking the AMT down the road? Romney or Obama can promise whatever plan they want, in office no significant tax burden will be reduced or shifted.

    1. Ah, but the perception of burden will be shifted, which is much more important.

      1. Unless, you know, you actually pay taxes.

    2. No one removes pages from the United States Tax Code, they only add to it.

      Hence, vote out every incumbent.

      1. So a new crop of bored lawyers can replace them?

        The problem is not the people in office, but the type of person who seeks office.

    3. I don’t know why we’re talking about any tax reform like it could happen.

      they’re talking about it because the public, the part not focused on The Voice, is becoming increasingly aware of the malignancy of the code. Folks get that GE legally avoided paying any income tax. They see subsidies for this and subsidies for that, and get that each subsidy is some Congressman blowing a contributor.

  2. This highlights an important point about the promises of presidential candidates: whether or not they’re telling the truth is not the only consideration. It’s necessary to ask this question: can he do what’s he’s claiming he will do? All too often the answer is “no”.

  3. God forbid that Romney go for a Hail Mary and campaign on the Fair Tax or the Flat Tax.

    1. Campaigning on the fair tax is a surefire way to lose.

      1. Yeah, campaigning on a platform that strives to eliminate a convoluted tax system that has more pages than the combined works of Shakespeare and replacing it with something that is sensible is a losing venture. /DERP

        1. It is a losing venture.

          The income tax will never be eliminated.
          So the Fair Tax in reality amounts to adding a federal sales tax on top of all the other bullshit.

          I couldn’t support it.

          1. The only way it could be supported is with the repeal of the 16th amendment (and the 17th, just for good measure).

            1. That’ll happen the day I bed Candace Bailey.

          2. Then it’s not the FairTax. Banning the income tax is an intrinsic part of the policy.

  4. Eliminating schedule A would be a good start. I’d take that.

  5. $100k incomes are fast becoming “middle income” because of dollar valuation. I was very surprised to hear that a friend who is two years out of college is making approximately $20k more than I was at that point in my career, and he has an associate’s degree in drafting as compared to my B.S. in engineering. Comparing my father’s income in the 1990s shows that adjusted by the CPI, my income falls about $15k short, even though I hold a position with similar responsibility as he did back then.

    1. Not sure where you live, but $250k family income is middle class here in New Jersey. We make a little less than that – and I pay over $1k a month in property taxes, the same for a decent high school. I hit the AMT every year and pay one of the highest state income taxes.

      Back in 2000, Al Gore stubbornly refused to put a number on the “working class” that he kept championing. That was smart. As soon as Obama names a number, anyone close knows they are being targeted for tax hikes.

      1. and yet, Romney’s assessment of middle income – more or less your circumstance – drew ridicule.

      2. Wow, I make $30K and think I’m middle class here in po-dunk. I have a paid-for car and a mortgage, and obviously way-lower property taxes.

        1. I work with people who live in NY City who have far higher taxes and living costs – so I think of my $600k house in NJ as cheap.

        2. And that is EXACTLY the point. Salaries and cost of living are not the same everywhere. Assuming an average household, 2 adults and 2 kids then $250K in flyover territory is at the very least upper middle class if not outright rich. $30k a year in New York, Boston, Chicago, DC, San Fran, etc is sub poverty level and borderline if not actual homelesness.

          All in all this is yet another reason to shift from an income tax to a consumption tax, with a consumption tax it is automatically calibrated to your cost of living because you pay taxes on the stuff you buy. With income taxes the tax brackets are the same no matter where you live.

      3. I disagree. $250k or anywhere near it is NOT middle Class. How can it be, when it puts you in the top 5% or so?
        You may live in an area, like I do (Marin County,CA) that has a lot of high income earners (and moronic lefties) or expensive property. If so, the folks who moved here many years ago don’t have to earn as much as the newer arrivals. Maybe that’s your situation?

        I love the flat tax and I hate the Dems in CA. I’ll be leaving the state I grew up in and have lived in my whole life, because of the morons in power. God, I really hope the economy stays bad in CA so that the Dems suffer.

  6. $60 billion a year saved by controlling “waste and fraud”

    Without getting into what “waste and fraud” actually *are*, one straightforward way to deal with them is: “We agree that your agency loses $X of taxpayer dollars to waste and fraud, so your funding has been cut $X.”

    1. Without getting into what “waste and fraud” actually *are*

      Yep, more of that vague and ambiguous language that which pols are so fond. It’s like pr0n: you “know” it when you see it, and totally subjective.

      It’s just like Drake wrote above, about Gore not placing a specific number on what is defined as “middle-class”, a nebluous catch-all in itself. Like a specific number delineating a what is considered “middle-class” and “rich”, the minute you specify what is “waste” and “abuse” (popular buzz words in medical care debates; one person’s definition of waste may be, and often is, another person’s desired course of TX); you know damn well you are a target.

      And nobody likes to be in anyone’s fiscal crosshairs.

      1. I would be happy if they simply said “Look, we are bringing in 19% of GDP in taxes and spending 23%; therefore you are getting a 4% cut.”

        Balance the budget, baby.

        1. “Your agency’s funding for this year is (last year’s)*0.96-$X.”

        2. Technically the cut wouldn’t be 4%, but 4/23, which is somewhere between 17 and 18%.

          I could go for that, however.

        3. Um, that would be an 18% cut (1-(23/19)) = .18

      2. Yep. Can you believe that a lotta guys think the Dept of Ed is “waste” and the TSA is “fraud”?

        1. Yep. Can you believe that a lotta guys think the Dept of Ed is “waste” and the TSA is “fraud”?

          I resemble that remark.

  7. Has any Presidential campaign tax plan ever been implemented intact? (Reagan’s maybe the closest?) They make nice talking points, then Congress does whatever it wants.

    An honest Romney tax plan would be: “I’ll sign a tax cut and veto a tax increase”. Obama’s would be the opposite. Any greater detail is just wishful thinking.

    1. and therein lies one dichotomy of this campaign: Romney is besieged by demands for “specifics”, so the broad strokes statement you offer would be ignored. Obama, meanwhile, has laid out nothing, either specific or vague, and no one is asking him to.

    2. Well, we know for certain that Obama wants to raise taxes, and we hope the enigma (dog whistle) that is Romney will sign a tax cut. It reminds me of ’08–hoping the candidate will follow through on what he seems to be hinting at, in that case decriminalizing pot.

  8. Romney’s basic idea, which in broad outline has bipartisan support, is to “lower tax rates” and “broaden the base”

    Translation: Cut taxes for the rich, raise them on the poor and middle class. As much as I’m not fond of the soak-the-rich class warfare of progressives, you can only squeeze so much blood from a stone.

  9. To be fair, Romney has stated that if he couldn’t remain revenue neutral he would reduce the tax cuts, rather than increase taxes on the middle class. I don’t know why commentators seem to keep ignoring this fact.

    1. Probably because Romney is a liar whose positions change with the wind. Chances are, Romney will make a bunch of noise about lowering taxes and then not really do much with them, much in the same way that The One has made a bunch of noise about raising taxes on the richers but not really done anything with them.

      At this point, I don’t care. I want Obama out of the White House because he’s an affirmative action progressive crybaby. He’s the most gimmedats president since LBJ, and his feminist culture war bullshit is a huge turn-off for anyone who doesn’t want to listen to a bunch of harpies trill about WHITE MALE PRIVILEGE.

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  10. There are major sections of the policy that are left blank.

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  13. The GOP presidential candidate’s tax plan is vague, backward, and possibly impossible.

    Unlike the rest of his plans?

  14. The choice between Romney and Obama is the choice between bronchitis and rectal cancer. Neither is something you want but one is WAY worse.

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