It seems that the whole campaign season has been about Romney’s tax plan. Namely that it’s nothing more than a giant gimme to the rich at the expense of the middle class. The argument goes along the lines of this:
You cannot reduce the marginal rate by 5 points across the board and eliminate enough deductions from the wealthy to make the plan both revenue neutral. Therefore the plan MUST raise rates on those of us not in the upper 5 to 1 percent in income.
First this: I am a firm believer in the Laffer curve, a concept that describes what people do with their money to expose it to a tax burden. The idea is that a tax rate of 0% will bring in the same amount of income as a tax rate of 100%. Revenue increases at the beginning of each end until it reaches some theoretical maximum along the way. Conservatives like to use the Laffer Curve as an argument against HIGHER taxes. In this I am using it as an argument against LOWER taxes. While I disagree with liberals that we need to raise taxes, I think that inserting a level of confidence that we are simply going to keep tax rates consistent is enough to grow the economy.
Second this: Romney’s plan has three planks –
- 5 point reduction across the board
- Deficit neutral
- Revenue neutral
Admittedly I get frustrated by the confusion created when “deficit” and “revenue” are used interchangeably, but it is what it is.
With all of that said, if Romney’s plan IS impossible, all it means is that what he is describing cannot be done. It does NOT mean that there MUST be a tax hike on the middle class. Of that he’ll blow a hole in the deficit.
For example, it could mean that he can’t move the rate by 5 points for the wealthy.
Okay, so my two issues aside; is the Romney tax plan impossible as the Obama campaign posits?
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.
I’ve always thought that Romney’s plan counted on growth. Growth of existing salaries and then growth of the transition from unemployed to employed.
Now, do I think that’s the path we need to take? Not necessarily. But do I trust Romney more than Obama on anything, and I mean ANYTHING financial? Most assuredly.