Does Mitt Romney's Tax Plan Math Add Up?
Mitt Romney and Paul Ryan want you to know their presidential ticket has a tax reform plan. But they don't want you to know what it is. Which may be because it's impossible.
Oh sure, they are both happy to talk about it in it broadest contours. The idea is to broaden the tax base by closing loopholes, then cut income tax rates by 20 percent.
But they don't want to say which loopholes they want to close. And they don't even want to speculate on which tax carve outs might conceivably be on the chopping block in order to make their proposed tax cut revenue neutral.
That's going to be tough, politically. And even if the politics work, it's not clear that the simple math behind the plan does either. Making rate cuts of that size revenue neutral will substantially broadening the base—perhaps doing away with large and popular tax deductions. And even they may not balance out the rate cuts that Romney has proposed.
Yet Rep. Paul Ryan has insisted that it's possible to have it all. Indeed, he has boxed in the campaign somewhat further. On Fox News last month, he declined to lay out the details, but insisted that it could all add up—and without touching some of the most popular deductions. "It would take me too long to go through all the math," he said. "But let me say it this way, you can lower tax rates by 20 percent across the board by closing loopholes and still have preferences for the middle class for things like charitable deductions, for home purchases, for health care." And he appealed to authority to argue this was true. "We've run the numbers. I've run them in Congress," he said. "We've got five other studies that show you can do this."
Romney, for his part, has been equally evasive about naming deductions. But he has also pointed to independent analyses in order to justify the plausibility of his tax plan. At the first presidential debate, he noted that six independent studies verified the basic idea behind his tax plan.
The problem is that those studies (several of which are really more like detailed blog posts) don't quite show how this can be done—at least not without giving up on some promise that Romney has made.
A study by Princeton's Harvey Rosen assumes that the rate cuts will spur dramatic economic growth that will help bolster revenues. But as The Washington Post's Dylan Matthews has noted, the growth assumptions used in that study assume that Romney's tax plan is revenue neutral prior to increasing growth—and that the growth stems in part from the fact that the rate reductions are paid for. You can't rely on the growth to flow from already-revenue-neutral rate reductions and also rely on growth to make the rate reductions revenue neutral.
Other analyses make different assumptions about how Romney might achieve his tax goals—by, say, changing Romney's definition of middle class so that the plan raises more money from people making $100,000-$200,000 a year, or by eliminating tax exemptions that Romney's critics failed to identity but that still don't quite raise enough revenue. The best Romney's defenders can do is insist that his promises are technically possible but will be extremely difficult.
Given the dicey politics of tax reform, in which the biggest and most valuable deductions are also the most popular, that's practically an admission that it really is impossible, even assuming that the basic math works.
And it may not. A letter to Congress last week from the congressional Joint Center on Taxation reported that ditching a slew of tax carve outs – by getting rid of most deductions, and adding new taxes and fees on muni bonds and some other investments would only raise enough additional tax revenue to cut rates by 4 percent and remain revenue neutral. The JCT report didn't look at Romney's plan specifically. But it does highlight how hard it will be to make it work.
There are some legitimate criticisms of the JCT's assumptions from base-broadening, deficit-hawk heavyweights Alan Simpson, Erskine Bowles, Pete Domenici and Alice Rivlin, who, Politico reports, released the following statement in response:
"There is a growing bipartisan consensus for an approach that broadens the base, lowers rates and raises revenue as part of a comprehensive fiscal plan," they said in a joint statement. "The JCT study looks at only a subset of the tax expenditures we reformed or eliminated, thereby leaving out a substantial amount of savings that were included in our proposals. Most notably, the JCT study does not address the employer health exclusion, the largest tax expenditure in the code, as our plans would."
But of course, if Rep. Ryan's Fox News statement is to be believed, the Romney tax plan wouldn't touch the health care exclusion either.
All of which is to say that no one has shown an obvious way for this to work. The math is difficult at best. The same goes for the politics. The combination certainly makes the plan's combo of promises implausible, and probably effectively impossible.