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Wednesday, August 22, 2012

Goolsbee: Mitt Romney's Tax Plan and the Middle Class

Wall Street Journal op-ed:  Mitt Romney's Tax Plan and the Middle Class, by Austan Goolsbee (University of Chicago, Booth School of Business):

Researchers for the Tax Policy Center, a project of Brookings and the Urban Institute, found that Romney's plan would cut taxes for individuals by about $4 trillion over the next 10 years, on top of the costs of extending the Bush tax cuts, by cutting rates by 20%, abolishing the estate tax, and abolishing the Alternative Minimum Tax, among other things.

For high-income people, that lost revenue exceeds the value of all the relevant deductions and exemptions in the tax code combined—charitable giving, mortgage interest, state and local taxes, health insurance not counting as taxable income, etc. So to keep the deficit from increasing, middle-class tax increases are inevitable.

Mr. Romney declared the study "garbage." This editorial page condemned it for leaving out other exemptions that Mr. Romney could, theoretically, try to eliminate.

Many economists on the left were upset that the study wasn't tougher on Mr. Romney's plan. You couldn't completely abolish every single deduction and exemption for high-income people, and any realistic plan to limit them generates so much less revenue that the Romney tax plan could impose a trillion-dollar tax increase on the middle class while still managing to increase the deficit by an additional $2 trillion.

In the wake of the study, the Romney camp would not disclose the details of what they would do. Instead, they just reiterated that their plan was a variation on the December 2010 plan of the Bowles-Simpson commission....

As we approach the election in November, let us hope that whoever wins will negotiate an agreement that helps us avoid the so-called fiscal cliff at the end of the year when hundreds of billions of dollars of tax cuts expire and huge automatic spending cuts kick in. Let us hope they will avoid a debilitating showdown over government default; that they will invest in the country's growth potential; and will address the fiscal imbalance we have known about for 40 years and not solved....

The Bowles-Simpson plan was designed to facilitate such a deal. Mr. Romney's plan was designed to wreck it.

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