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Thursday, October 4, 2012

Tax Whoppers in Last Night's Presidential Debate

FactCheck LogoFactCheck.org:  Dubious Denver Debate Declarations: Obama and Romney Swap Exaggerations and False Claims in Their First Meeting:

  • Obama accused Romney of proposing a $5 trillion tax cut. Not true. Romney proposes to offset his rate cuts and promises he won’t add to the deficit.
  • Romney again promised to “not reduce the taxes paid by high-income Americans” and also to “lower taxes on middle-income families,” but didn’t say how he could possibly accomplish that without also increasing the deficit.
  • Obama again said he’d raise taxes on upper-income persons only to the “rates that we had when Bill Clinton was president.” Actually, many high-income persons would pay more than they did then, because of new taxes in Obama’s health care law.

http://taxprof.typepad.com/taxprof_blog/2012/10/tax-whoppers.html

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The first 20 or 25 minutes of the debate, all they talked about was their tax plan. But neither of them mentioned, and the doddering moderator did not point out, that the only tax plan that matters is the one that the House approves and sends to the Senate. In effect, each said that he will hold the budget hostage, just because he has a veto pen. Talk about "fiscal cliff."

If we had a parliamentary system, in which voters elect the prime minister through their choice of party candidate in their own district, then it would make sense to campaign on a tax plan. But it's absurd for two guys running for chief executive, to campaign as though they would become chief legislator.

Posted by: Bob | Oct 4, 2012 3:05:21 AM

Can someone tell us how these two statements from Fact Check can appear together?

"Obama accused Romney of proposing a $5 trillion tax cut. Not true. Romney proposes to offset his rate cuts and promises he won’t add to the deficit."

"Romney again promised to “not reduce the taxes paid by high-income Americans” and also to “lower taxes on middle-income families,” but didn’t say how he could possibly accomplish that without also increasing the deficit."

Fact Check has adopted mutually exclusive positions.

Doesn't someone need to 'Fact Check' the Fact Check group? Or do they live in a universe where you can keep taxes the same on one group, lower taxes on another group and not increase the deficit?

Posted by: David R. | Oct 4, 2012 6:44:00 AM

Bob makes a very good point. Too many Americans think they're voting for a monarch, and hold expectations of the chief executive as though the position were one of supreme ruler. The problem, with tax and most other issues, is Congress. Unfortunately, Congressional elections have been gerrymandered in a way that parliamentary systems don't tolerate.

Posted by: Jim Maule | Oct 4, 2012 7:53:27 AM

Bob and David: Your points are well taken, but the reality is that Congress has effectively ceded some degree (little or a lot - any is too much) of power to the Executive over the past 50 years. That has led to presidential candidates promising more than they can or even want to deliver.

Posted by: Dr. Deano | Oct 4, 2012 8:23:08 AM

Can someone tell us how these two statements from Fact Check can appear together?


Sure, Dave. It's called reducing spending.

Or, if you are a Democrat, reducing "Investment In Our Future", known to us common folk as "spending".

Math. It's hard.

Posted by: West | Oct 4, 2012 8:25:46 AM

I'm searching for an answer to one question. After asking in many on-line venues, I realize this one might be serious enough to produce an answer. Aren't all business taxes paid for by cosumers? I consider this question important because 1) it illustrates that business taxes are a hidden burden on the consumer, unacceptable in the "age of transparency" (sarcasm intended) and 2) business taxes impact the poor to a greater degree in that they must spend a greater portion (usually all) of their income, thus paying this hidden tax 100%, as opposed to middle or upper classes which can save a portion. Tax profs, somewhere, please help!

Posted by: tom beebe st louis | Oct 4, 2012 8:28:02 AM

Hmmm ... I thought that Romney said that he'd cut taxes and do the other things while cutting the deficit by growing the economy. Some might not believe that, but it IS an explanation.

Obviously in a stagnant economy the math doesn't add up, and it is interesting to see that this is the scenario the President uses.

Posted by: Kevin M | Oct 4, 2012 8:38:45 AM

How can you "keep taxes the same on one group, lower taxes on another group and not increase the deficit?"

For those with a sub-4thgrade math education, here is the answer: reduce spending.
Reduce the size and power of the federal gov't.

Romney said out loud that the US shouldn't spend money on NPR and many, many other activities that force us to borrow from the Chinese and provide taxpayer-funded jobs to Dems with liberal arts degrees.

Posted by: Jim,MtnViewCA,USA | Oct 4, 2012 8:40:04 AM

Are there $5 tril in deductions, credits and "loopholes" that can realistically be taken away to offset the lower marginal rate? Especially if these tax benefits are only denied to the $250 AGI taxpayers? Even if you deny the mortgage int deduction to the wealthy it will still depress the housing market. And the charitable deduction is sacrosanct. That's a big share of the deductions.

Posted by: Mark | Oct 4, 2012 8:51:04 AM

Sure, we can roll back to the Clinton tax rates... if we roll back the spending and the myriads of regulations and executive orders to the same level.

Oops, there goes Obamacare.

Posted by: SDN | Oct 4, 2012 9:01:28 AM

Mr. Maule, you haven't read much British history. I just finished a very long biography of nineteenth century British Prime Minister William Gladstone, written by long-time twentieth century Labour MP and government minister Roy Jenkins. Roughly a quarter of it focused on the continually recurring question of Irish Home Rule and changes in the Irish representation in the British Parliament. Another large portion of the book covers the frequent and eventually quite radical changes made in the apportionment of Parliamentary seats between rural and urban, aristocracy and former serfs. Two of Gladstone's Liberal governments were thrown out of office as a direct result of such controversies; Gladstone's own home district changed repeatedly as his partisans had to find new constituents who'd support his preferred reform measures. Even short of these big shifts, there was a continual process of adjusting representation, including such obviously political (and anti-one man, one vote) measures as assigning multiple MP spots to the same constituency (so that the party in power could be assured not of just one, but two or even three of their partisan representatives being returned to particular seats).

This whole subject, which includes and also extends beyond the gerrymandering fights we've had in the U.S., was a very, very big deal, as big or bigger in British politics than the ending of the slave trade or the expansion of the British empire. What limits American politicians is the U.S. Constitution -- its specificity about things like election of federal officials, and its difficulty of amendment. The Brits, of course, claim they have a constitution too, but it's not written down or formally amendable, it's just a notion of firm traditions that any given Parliament is able to overturn.

Perhaps you're suffering from a mild affliction of oikophobia. One has to be naive to think that people in other democratic countries don't see the same opportunities to maintain control of governments by diddling with the electoral mechanisms that Massachusetts Gov. Eldridge Gerry first became famous for in 1812. In any event, I don't share your apparent reverence for parliamentary governments, and much prefer our system with its written Constitution.

Posted by: Beldar | Oct 4, 2012 9:06:19 AM

If one is going to factcheck.org for information one might as well go to mediamatter also, the info is just as credible...

Posted by: juandos | Oct 4, 2012 9:06:45 AM

"Too many Americans think they're voting for a monarch, and hold expectations of the chief executive as though the position were one of supreme ruler."

As well as too many American Presidents and their apologists!

Posted by: Steve | Oct 4, 2012 9:14:57 AM

FactCheck.org "So, Obama didn’t double the deficits." Uhhh yea. He "in fact" almost quadrupled it according to the CBO. CBO deficit projection (2009) for 2012 was -$264 Billion. It's reported to be -$1.1 trillion.

Posted by: Jay | Oct 4, 2012 9:20:30 AM

For those who claim the Romney plan can be revenue neutral despite the math that says it cannot because he will also cut spending, please note that is not what revenue neutral means.

Revenue neutral means that that the tax revenues will be the same after the changes as they would have been in the absence of the changes. Spending is not part of the equation.

Good try though.

Posted by: David R. | Oct 4, 2012 9:31:08 AM

People, like some around here & Austin Goolsbee, simply do not understand that the only way to grow receipts to the government is to grow the private economy and you cannot do that with government spending.

Some people cannot do math.

Posted by: lester | Oct 4, 2012 9:42:50 AM

FactCheck tends to be pretty good... just not on politics, where their obvious personal beliefs get in the way.

Posted by: Deoxy | Oct 4, 2012 9:47:48 AM

For some reason "taxes" is often used to mean "tax rates".

Romney has said that he'd go after some deductions and credits. Reducing deductions and credits can result in increased revenue even when rates (and brackets) remain the same. That revenue can then be used to offset revenue losses in other places.

Posted by: Andy Freeman | Oct 4, 2012 10:14:20 AM

How do you lower rates and get more tax revenue? Here is a macro snapshot of 2002-2007. Number of taxable returns, total AGI, total tax.

tax returns AGI TAX
2002 91,197,436 5,641,127,688 796,986,268
2003 89,170,499 5,746,568,751 748,017,488
2004 89,406,664 6,265,500,376 831,976,333
2005 90,851,494 6,856,723,096 934,835,769
2006 92,740,927 7,439,473,161 1,023,920,139
2007 96,269,751 8,072,293,831 1,115,751,379
If I recall, the CBO report at the time of the Bush tax cuts predicted exactly the opposite of what occurred here.

Posted by: Landru | Oct 4, 2012 11:05:33 AM

The top 1% pays what share of income tax today under the Bush tax rates? 30%
The top 1% paid what share of income tax under the Clinton tax rates? 25%
The top 1% paid what share of income tax under the Carter tax rate was 70%? 18%


Lowering top rates has historically been one way to increase the amount of income tax paid by the top 1%

Posted by: DonM | Oct 4, 2012 12:21:34 PM

"Revenue neutral means that that the tax revenues will be the same after the changes as they would have been in the absence of the changes. Spending is not part of the equation."

It is called economic growth. Romney talked about it alot if you listened.

Posted by: Doug | Oct 4, 2012 1:04:10 PM

David R., per the article above, the statement made by Romney was that he could reduce tax rates "without also increasing the deficit." Spending is most definitely in the equation of deficit calculation.

Posted by: Jeff | Oct 4, 2012 1:27:30 PM

A tax rate of R on population of potential size S with a fraction A avoiding taxes, producing per capita output O will produce revenue R * S * (1-A) * O.

At a rate of 0, A will be 0, and at a rate of around 1, A will also be 0.

At a rate of 0, O will be at its maximum amount, and O decreases as R increases.

The Laffer maximum is where increasing R will get less total revenue due to increased avoidance, and where decreasing R will get less total revenue due to lower rates.

So if rates are very high, increased tax avoidance and lower economic output can actually cause higher rates to generate less total revenue.

But it is always true that if you double R, you *never* get twice the receipts. You'll get more like 150% of what you're getting now, because A and O will change.

And what Democrats routinely do is increase rates and optimistically expect that A and O will not change. (And the CBO will do this math because their job is to calculate according to the assumptions Congress gives them!) Again and again they will present plans that spend $1 billion and increase rates to raise $1 billion, but those programs invariably go over budget and the increased rates pull in less revenue. That's the story of how we're trillions in the hole.

Posted by: Ben | Oct 4, 2012 1:29:56 PM

Romney has previously said in the primaries he would cut taxes -- the same words Obama used to describe what Romney is planning:

http://www.dailykos.com/story/2012/10/04/1140243/-Mitt-Romney-calls-Mitt-Romney-a-liar-Taxes-edition-with-video

It is hard to imagine how factcheck can score what Obama said as false. Moreover, if specific tax rate reductions are set forth which would be calculated at $5 trillion, and no specific tax deduction recissions are mentioned, then the correct calculation is $5 trillion offset by $0 = $5 trillion tax cut.

If Romney disagrees, he can put forth some specifics and the American people can run the numbers. Until he does that, it is absurd to call Obama wrong on this important point. (I am putting aside, of course, the political difficult of Romney actually rescinding deductions once he proposes specific ones given that each one has a constituency, but he has not even proposed them)

Posted by: Factcheck is wrong | Oct 5, 2012 7:08:58 AM