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Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Tuesday, August 14, 2012

WSJ: Mathematically Possible -- Correcting the False Assumptions of Obama's Tax Gurus

Following up on my previous posts (links below):  Wall Street Journal editorial:  Mathematically Possible: Correcting the False Assumptions of Obama's Tax Gurus:

It isn't easy being the intellectual frontmen for President Obama's re-election campaign, as the boys at the Brookings-Urban Institute Tax Policy Center are discovering. Their ballyhooed study of Mitt Romney's tax plan looks worse with each new examination.

Mr. Romney's tax plan would cut income tax rates across the board by 20%, while cutting loopholes that mostly benefit those in the highest income classes. The Tax Policy Center claims it is "mathematically impossible" to finance the rate cut without jacking up taxes by $86 billion on the middle class and poor. Mr. Obama has jumped on the study to support his claims that Mr. Romney would raise taxes, though the Republican has proposed no such thing.

The study's biggest distortion is its raw assertion that Mr. Romney would refuse to close certain loopholes. In the appendix, the Tax Policy Center lists, among others, two giant tax deductions that it says would go untouched: the exclusion of interest on tax-exempt municipal bonds, and the exclusion of interest on life insurance savings. The study claims that Mr. Romney won't close these because they are incentives for saving and investment.

One problem: Nowhere do Mitt Romney or his advisers say that these deductions can't be touched. Senior economic adviser Glenn Hubbard says these deductions are definitely "on the table." ...

Scholars at the American Enterprise Institute examined what happens to the Tax Policy Center math when this error is corrected. AEI economic research associate Matt Jensen found that "Both of these exclusions largely benefit the wealthy, and, according to the Treasury Department, added together their repeal would net upwards of $90 billion that could be redistributed to lower-income individuals. That would go a long way towards balancing the supposed $86 billion windfall for the rich and tax hike on the middle class and poor, and it could make the impossible suddenly possible." [How the Tax Policy Center Could Improve its Romney Tax Study]

The AEI analysis warns that these numbers change from year to year, but it concludes that by eliminating these two deductions and a few other smaller ones, Mr. Romney can make his math add up. In other words, poof, no tax hike on the middle class.

This won't stop the Obama campaign from making its false claims, but it ought to at least embarrass the media into questioning them. It should also embarrass the analysts at the Tax Policy Center who claim to be nonpartisan, above-the-fray economists but somehow always seem to provide analysis that serves those who want to raise tax rates.

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Wouldn't it be easier if Romney just released the details instead of all this second hand guessing? Because it really is all bullshit until he does.

Posted by: Bryan Price | Aug 14, 2012 10:28:40 AM

Organizations Funded Directly by George Soros and his Open Society Institute: Brookings Institution and Urban Institute

In 2001, UI and the Brookings Institution began collaboration on a Tax Policy Center (TPC) to discredit President George W. Bush's tax cut plans, which UI claimed disproportionately and unjustly favored "the wealthy."

Any questions?

Posted by: Woody | Aug 14, 2012 11:23:36 AM

Once again we have a mainstream media falling into the Romney Tax Plan trap (although it is really not that hard to fool the editors of the Wall Street Journal).

That trap is basically this. Mr. Romney will not release any details on his plan, so anyone who tries to evaluate the plan based on reasonable assumptions is attacked because Mr. Romney and his enablers will say those assumptions are not what is in the plan. This strategy is intentional, a deliberate action to prevent analysis of the plan so that the myth of revenue neutral tax cuts can be maintained.

But even if Mr. Romney's plan is revenue neutral, what does it do? Assume that Mr. Romney's plan is revenue neutral. If one accepts the premise that this does not raise taxes on lower and middle income tax payers then it must leave the tax burden on upper middle income and wealthy taxpayers unchanged (That's math, check it out). But if all that does is lower marginal rates and leave everyone's tax payments the same then the only advantage of the plan is the unproven and unsupported assertion that somehow lower marginal rates will provide a huge stimulus to economic growth.

The fallacy of that position is easily shown by the Clinton tax increase on high income individuals which resulted in strong job growth, economic expansion and a balanced budget. Of course, that is just another case of the anti-Conservative bias of facts and experience.

Posted by: David R. | Aug 14, 2012 4:52:21 PM

Oh, bull. If I hear one more person falsely claim that Clinton's tax increases were responsible for the dotcom economic expansion, I think I'll puke.

And, Bryan, this article is about Romney's tax proposals -- not his tax returns, which could be released once Obama releases his college records. Work on that for us.

Posted by: Woody | Aug 14, 2012 7:39:33 PM

"the unproven and unsupported assertion that somehow lower marginal rates will provide a huge stimulus to economic growth"

Unproven and unsupported outside the times it's happened, of course.

But, then, using the word "enablers" gave away your game. Try to hide your partisanship better; you MIGHT fool someone that way.

Posted by: Rob Crawford | Aug 15, 2012 4:38:19 AM

Was it Clinton's tax hike on the rich that "caused" the growth...or was the growth in spite of his tax increases? Because it seems to me that the job growth in the 90's is far more easily correlated with welfare reform, spending cuts, electoral defeat of his health care plan, and balanced budgets, all of which were forced on Clinton by a Republican congress that finally got serious (for a few short years at least) about controlling deficits by retarding spending and government growth.

Posted by: L | Aug 15, 2012 4:44:02 AM

Well David,
Clinton's balanced budget didn't start until after he passed Congress' cut of capital gains tax rates. Prior to that he was squirming all over the place over when his budget would actually balance.

Posted by: gazzer | Aug 15, 2012 5:03:27 AM

And that whole "Internet Boom" had nothing to do with the creation of jobs. It was all about the tax increases.

Posted by: Pat H. | Aug 15, 2012 5:12:55 AM

Reasonable assumptions would be those necessary to make the plan work. Since that would mean closing those two loopholes, that is the assumption that would be made by unbiased analysis.

Consequently, reasonable assumptions point us toward the idea that the net effect of Romney's plan would be to cut taxes on the lower and middle classes.

Of course, if the center is funded by Soros, you know 'reasonable' wasn't nearly as important as providing Democrats with a propaganda tool.

Posted by: QTom | Aug 15, 2012 5:14:47 AM

And your assumption is that taxes were the only variable in the equation. A lot of "economic growth' during the Clinton administration was lost when the dot com bubble burst and you need to remember that a Republican controlled Congress put a bit in Cliinton's mouth to stop he and Hillary's grand plans.

As written here, the myth that more taxes were collected from the "rich" under Clinton than Bush is just that, a myth. By about 6%, Bush collected more taxes from "the rich" than Clinton. I posted an analysis here:

Even with the Bush tax cuts, the share paid by the “rich” has increased.

Democrats love to express their desire to go back to the Clinton economy when the “rich were taxed more” but the “rich” are paying more as a percentage of total taxes today than they were in the Clinton years. Fox News quoted Obama as saying same:

“All I’m asking is that we go back to the rates that were paid by wealthy individuals under Bill Clinton,” Obama said Thursday at a campaign stop in Orlando. “And if you remember, that’s when our economy created nearly 23 million new jobs. We created the biggest budget surplus in history. And here’s the kicker: it was good for everybody.”

Obama wants higher rates, he doesn’t care about the share of taxes paid. Higher rates are a way to penalize higher earners, it does not guarantee more total taxes – actually the Laffer Curve indicates that it does the opposite. The fact of the matter is that the top 1% paid, on average, a 5.6% greater share of total income tax during the Bush years (37.1% average over 2000-2008) than in the Clinton years (31.51% average over 1992-1999).

Posted by: Utah | Aug 15, 2012 5:21:18 AM

The real fairy tale is the one told by then Senator Obama, and repeated by candidate for President Senator Obama, and then claimed by President Obama that his plans would be deficit neutral. The record now shows what a shameless liar he is both as a candidate for President and as the President. The record now shows how he will lie to your face while his lawyers tell the truth to the Supreme Court.

The amount of evidence to support the erroneous claim that returning to Clinton era tax rates will produce Clinton era economic growth is the same as that showing the Chicago Cubs are World Series champs. It takes serious delusion to look at President Obama's record as rampant credit card abuser that spends in 6 years what he claims will be paid back in 10 years as a campaign platform for re-election.

Posted by: Gabriel Sutherland | Aug 15, 2012 5:32:48 AM

it ought to at least embarrass the media into questioning them

No, it won't. And here is why: The media are propagandists for Democrats.

The media are not momentarily lost, decent people temporarily distracted by their liberal bias into jeopardizing their industry standards. The media are propagandists. The media are doing the Democrats' dirty work deliberately and willfully, knowing full well what they are doing.

The media are propagandists. Call them by their name. Out loud. In public. Propagandists. They are on the other side.

Posted by: Paul A'Barge | Aug 15, 2012 6:25:34 AM

High income taxpyers who use a lot of loopholes to lower their tax bill will end up paying more. High income taxpayers who get most of their income from wages will pay less. It isn't that difficult to explain or to understand.

Taxing muni income is a bad idea. Municipalities will pay more for debt and property taxes will rise to cover the cost. That said, as a bond buyer it makes no difference to me. What I once bought to yield 4% will yield 6.5% and after tax it's close to a wash for me.

Posted by: spongeworthy | Aug 15, 2012 6:47:09 AM

...but it ought to at least embarrass the media into questioning them.

Unlikely to happen.

Posted by: Blacque Jacques Shellacque | Aug 15, 2012 7:11:37 AM

Has Romney ever heard of Congress?

I'm a Republican, and we have a pretty poor record of keeping promises, and a poorer record of balancing budgets.

I like Ike!

Posted by: save_the_rustbelt | Aug 15, 2012 7:42:12 AM

Woody, that is exactly my point. This isn't about his tax returns. He hasn't released any details on his tax proposals.

And you are one more idiot about wanting Obama to do something totally unrelated. Like even that would force Romney. Exposure of multiple years of tax returns has been the norm for fifty years now, and there aren't that many people alive and voting that haven't voted with a candidate that hasn't released their tax returns. But keep bringing it up, because it certainly isn't going away, isn't it?

Even with the Bush tax cuts, the share paid by the “rich” has increased.

Because their growth of wealth and income still outstrips everybody else. Why should anybody be surprised?

Meanwhile, we're still waiting for those Bush tax cuts to pay off...

Posted by: Bryan Price | Aug 15, 2012 12:22:08 PM

Cut taxes to zero. With a weak government, underpaid and corrupt courts, police, and regulators, underfunded and low quality public education, vast swaths of the population without healthcare, crumbling infrastructure, and no basic scientific research, the economy will start growing like gangbusters.

Get out of the way, Germany, Scandinavia, and China. Somalia has shown us the path to economic prosperity.

Posted by: Anon | Aug 15, 2012 6:49:10 PM

While it is premature to expect romneys tax reform plan to be completely fleshed out, it is reasonable to expect more details than we have gotten. At the very least he should release more details on exactly which tax exemptions will be seriously considered for repeal in the package. Then we can finally evaluate whether that list of lost exemptions hits mainly the upper class (as claimed by romney), or the middle class (as claimed by dems).

Until romney does that, it was wrong of this foundation to make the list for him. The most they should have done would have been to make 2 assumptions about the list (upper or middle class exemptions), and then make 2 different projections (revenue neutral for all classes, or a shift in taxes from upper to middle), and ask Romney to say which assumed list is closer to the one he will actually do.

Posted by: richard40 | Aug 16, 2012 8:09:49 AM

Bryan, my bad on misreading your first comment.

What we need to concentrate on now isn't Romney's tax returns or tax proposals but why he killed that man's wife who had cancer, why he wants black people in chains, and why he makes his dog ride on top of the car. That's the real information that American voters have historically wanted from candidates.

Bush tax cuts, now appropriately referenced as the "Obama tax rates" since Obama renewed the cuts, have paid off in that individuals got to spend their own money on things that they wanted and needed rather than the government wasting that same money.

Posted by: Woody | Aug 16, 2012 3:30:06 PM