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

Tuesday, October 9, 2012

Princeton Economist: Obama Is Misrepresenting My Study on Romney's Tax Plan

The Weekly Standard:  Princeton Economist: Obama Campaign Is Misrepresenting My Study on Romney's Tax Plan:

Last night, the Obama campaign blasted out another email claiming that Mitt Romney's tax plan would either require raising taxes on the middle class or blowing a hole in the deficit. "Even the studies that Romney has cited to claim his plan adds up still show he would need to raise middle-class taxes," said the Obama campaign press release. "In fact, Harvard economist Martin Feldstein and Princeton economist Harvey Rosen both concede that paying for Romney’s tax cuts would require large tax increases on families making between $100,000 and $200,000."

But that's not true. Princeton professor Harvey Rosen tells THE WEEKLY STANDARD in an email that the Obama campaign is misrepresenting his paper on Romney's tax plan:

I can’t tell exactly how the Obama campaign reached that characterization of my work.  It might be that they assume that Governor Romney wants to keep the taxes from the Affordable Care Act in place, despite the fact that the Governor has called for its complete repeal.  The main conclusion of my study is that  under plausible assumptions, a proposal along the lines suggested by Governor Romney can both be revenue neutral and keep the net tax burden on taxpayers with incomes above $200,000 about the same.  That is, an increase in the tax burden on lower and middle income individuals is not required in order to make the overall plan revenue neutral.

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Candidates lie so often nowadays that essentially everything they say comes across as white noise.

Posted by: Lt. Dangle | Oct 9, 2012 1:31:45 PM

What Mr. Rosen says is simply a mathematical impossibility.

"The main conclusion of my study is that under plausible assumptions, a proposal along the lines suggested by Governor Romney can both be revenue neutral and keep the net tax burden on taxpayers with incomes above $200,000 about the same."

Mr. Romney proposes to offset his tax rate reductions with reductions in itemized deductions. If what Mr. Rosen says is true that taxes paid by those above $200,000 will not change, and if taxes are not raised on the middle income groups than the proposal cannot be revenue neutral.

This is because those who do not itemize will see a 20% decline in their taxes without any offset from the limits on itemized deductions. So if no group's taxes go up and one group (those who take the standard deduction) goes down revenues go down.

Really it is simple math with its built-in bias against fantasy.

Posted by: David R. | Oct 9, 2012 5:55:49 PM

Sure Governor Romney once called for the complete repeal of Obamacare. BUT THEN, at the debate, he said he wants to replace it with something that includes most of the expensive provisions of Obamacare. So that would seem to blow a hole in the deficit as well, unless he keeps the taxes from the Affordable Care Act in place.

Princeton Economist Harvey Rosen is, therefore, a partisan hack.

Posted by: Hugh | Oct 9, 2012 6:33:23 PM

David R.: What Mr. Rosen says is simply a mathematical impossibility. ...Really it is simple math with its built-in bias against fantasy.

Really, David R., aren't you the least bit embarrassed about spouting false Obama talking points as some type of academic reply to attack an author of a paper whose work has been misrepresented by the Democrats? Really.">!watch/13828">Really.

Posted by: Woody | Oct 10, 2012 7:03:39 AM

This explains, partly, how Romney's tax revenue plan is supposed to work. A lot of assumptions, clearly, but the problem is not that it can't happen, but that it's difficult and things would have to fall in line properly without much margin for error. I'm no expert and I'm not saying his plan will work, but what we do know is that today's tax policy is not working or helping either.

Posted by: JonInVa | Oct 10, 2012 7:13:43 AM

@David R.,
You're astute to call attention to the effect regarding those that don't itemize. However, there are still variables to allow for Mr. Rosen's conclusions to be correct. One should be able to conclude that one could take into account the proportion of itemized returns when determining the size of a tax rate reduction that would be revenue-neutral. You have shown no evidence that this wasn't the case all along.

Posted by: Eddie | Oct 10, 2012 7:50:20 AM

with more people in the work force=more tax's being paid=even lower taxes with more people having more money=more money being spent in the economy=a boost in the economy. it's really not brain surgery here guys.

Posted by: len r | Oct 10, 2012 9:13:01 AM

The study that Obama continues to talk about, does NOT take into consideration the increase in the number of new payers into the tax system that comes as a direct result of lowering the tax burdens of job creators. Think about it.

When you cut taxes for the job creators, THEY CREATE JOBS! When they create jobs, people get hired. When people get hired, people get PAID! when people get paid, people pay TAXES! this is not new stuff. This is basic Highschool economics.

Obamas plan, to raise taxes on rich people, here is an article on how that won't work. Even if we raised taxes on the rich by 100%, It would NOT bring us out of the hole we are in. And dont say that is not Obamas plan, because Joe Biden just said thats exactly what we are going to do.

"If the highest rate of 35% were raised by a factor of 20% to 42%, then the additional tax revenue would be $43.5 Billion, not much of a dent in $1,665.0 Billion. So, let's raise the rate by a factor of 50% to 52.5%; the additional revenue would be $108.9 Billion. Still nowhere near enough, so let's just tax it at a rate of 100%, bringing in an additional $404.8 Billion. Unfortunately the country is still $1,260.0 Billion in the hole for the year.

Obviously by confiscating at 100% of all the income of the so-called rich above a predetermined level, there would never again be an incentive to earn above the highest tax rate threshold".

Posted by: Bob H | Oct 10, 2012 12:07:32 PM

So 404.8 billion dollars, if we raised taxes to 100%. Thats doesn't even pay for half of the stimulus.

Posted by: Bob H | Oct 10, 2012 12:11:26 PM

Mr Rosen is correct. The plan is revenue neutral and the share of the tax burden the rich play can stay the same as due to growth and increases in wages there will be more middle class tax payers paying tax

Posted by: Jay | Oct 10, 2012 8:36:18 PM

The debatable point, the one portion of the argument that above commenters don't take into account, is that with a significant unqualified tax break to the general population whose income is under $200,000 the likely outcome of increased consumption will act to stimulate economic activity...or, at least not further suppress it.

The goal is to create an atmosphere where employers see a need for more employees and the cost of those workers is less than the revenue their activities will generate. With more people working and being taxed, instead of collecting benefits, the possibility that the net outcome is revenue neutral or better is fairly high.

If the real goal is to have the government's income and outlays match up, (ie: balance the budget) that will only happen when the government can trim about 30% of it's expenditures. Realistic taxation of wealthier individuals CANNOT generate enough income to offset the amount deficit spending, the numbers just don't support that approach, to say they do is demagoguery.

Posted by: Michael Bowler | Oct 11, 2012 1:18:09 AM