Romney's Tax Plan: Too Detailed and Too Vague
Romney's plan involves cutting tax rates and broadening the tax base. Any way TPC fleshes out the plan, in order to raise as much money as the tax policies in effect this year, it has to make the tax code more regressive: that is, rich people pay less and everyone else pays more.
I have two comments to add to Paula's. One, contrary to TPC's assumptions, Romney has said his plan will be deficit-neutral, not that it will be revenue-neutral. He plans to pay for part of his tax cuts with (unspecified) spending cuts.
So, it's not necessarily true that the Romney plan would raise taxes on middle- and lower-income tax filers. If Romney cuts taxes enough, his plan could give a tax cut to everybody, though the tax cuts would be much larger (percentage-wise) at the top end of the income spectrum than at the bottom.
However, as TPC points out, a plan that cuts taxes and spending will be more regressive than one that is revenue-neutral. Government spending tends to produce benefits that are more skewed toward lower- and middle-income people than tax preferences do. So even if middle-class people got small tax cuts, the loss of government benefits would much more than offset them.
My other comment is that the TPC report demonstrates that Romney's plan is simultaneously too detailed and too vague. Romney has made very specific proposals about tax rates: He will cut them 20 percent across the board on wage income, end capital taxes for people who make under $200,000 a year, and abolish the Alternative Minimum Tax and the estate tax. He also wants to cut the corporate tax rate to 25 percent, which TPC didn't address, as their report is just about individual income taxes.
All told, that's likely to cost as much as $5 trillion over ten years. Yet Romney won't tell us how his plan would be deficit-neutral, other than that the economy would grow faster, he'll cut some spending, and he will broaden the tax base.
Pressed, Romney has said it wouldn't be wise to lay his cards on the table. That's true; these issues can be demagogued, and it's better to try to negotiate politically sensitive changes behind closed doors. But if you don't know what base broadening you can get (or what spending you can cut), you don't know how deeply you can afford to cut tax rates. If he isn't ready to propose specific pay-for measures, it was irresponsible for Romney to propose specific tax rates.
In fairness to Romney, he tried to be vague on all of this. His original tax plan from the fall was basically to cut the corporate tax rate and otherwise extend the tax status quo, with a pledge to pursue non-specific tax reform in the future. As the Republican primaries dragged on, and his opponents proposed wildly irresponsible plans with shiny, low tax rates, Romney clearly felt he needed a low tax rate promise of his own -- which is how this half-baked plan came to be introduced in February.
Like everything else Mitt Romney does, this tax plan was borne out of political necessity. As the Tax Policy Center has shown, if you try to make the numbers work, the results are politically and economically dire. Therefore, if Romney is elected, you can expect him to abandon his tax plan -- again out of political necessity.
Read more breaking commentary from Josh Barro and other Bloomberg View columnists and editors at the Ticker.