September 21, 2021

The Wall Street Journal, For One, Has No Problem Making Mitt Romney’s Tax Plan Mathematically Possible

Late yesterday (or for you nostalgic types, in today's print edition), the Wall Street Journal published an editorial that goes after the Brookings Institution and Tax Policy Center for their analysis of Mitt Romney's tax plan. The long-short of the analysis is that, given what has been said by Mittens re: tax reform, there is an unknown variable in that math and that results in some questions. That is, the combination of tax cuts (e.g. extending Bush era cuts, a further 20% cut across the board, eliminate AMT and estate taxes, et al.) and elimination of certain tax deductions (that have yet to be identified) could – COULD – result in taxes going up for the middle class. Naturally, the Obama campaign spun this into a Romney tax increase on the middle class. Typical politics.

Well, the WSJ editors do not like this. Not one bit. Of course they don't like actions of the Obama campaign, but to take it further, they're upset at the "intellectual frontmen for President Obama's re-election campaign" for perpetuating this falsehood. They can't BELIEVE that the Brookings and Tax Policy guys can't make this plan work. Specifically, they speak to the "raw assertion that Mr. Romney would refuse to close certain loopholes."  And it continues:

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." And by the way, the municipal bond interest exclusion mainly serves to encourage states and cities to borrow and spend more, which is the opposite of a saving incentive. Many reform plans dating to Dick Armey's flat tax in 1995 have recommended eliminating both of these exemptions.

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."

Okay, first of all, everyone knows that "on the table" really means "something has to come off the table first." Secondly, if you rubes would simply employ Wall Street Journalgebra this is a piece of cake. All you have to do is make a couple of hasty assumptions about "two giant tax deductions" and the plan works! Christ! What's wrong with you, Brookings/Tax Policy Center? 

What's kinda/obviously funny here is that the Journal is pissed because the Brookings/Tax Policy analysis doesn't make the assumptions that the Journal assumes they should have assumed. Put another way, you should be able to read the minds of their editorial board (which, when you think about it, is not that unreasonable). The Urban Institute's Don Marron tried to explain this last week, writing over at the Tax Policy Center's blog:

There are roughly $1.3 trillion in tax expenditures out there, but not all will be on Governor Romney’s list. He has said, for example, that raising capital gains and dividend taxes isn’t an option and has generally spoken about lowering taxes on saving and investment. Based on those statements, the authors considered what would happen if Romney kept all the tax breaks associated with saving and investment, including not only the lower rates on capital gains and dividends, but also the special treatment for municipal bonds, IRA and 401ks, and certain life-insurance plans, as well as the ability to avoid capital gains taxes at death (known as step-up basis). The authors also recognized that touching some tax breaks is beyond the realm of political possibility, such as taxing the implicit rent people get from owning their own home. The authors also recognized that touching some tax breaks is beyond the realm of political possibility, such as taxing the implicit rent people get from owning their own home.

But that wasn't good enough for the Journal obviously. Since the Brookings/Tax Policy analysis reasoned that Mitt Romney "has generally spoken about lowering taxes on saving and investment" that actually meant that Brookings/TPC are making wild-ass guesses (while the Journal makes the opposite wild-ass guess) which, in turn, makes them partisan hacks.

There are two pretty measured responses from TaxVox, the Tax Policy Center Blog, that actually ran before the Journal piece even ran. One from Howard Gleckman, the editor of TaxVox, and the one from Marron, cited above. He continues:

Given those factors, the study then examined the most progressive way of reducing the other tax breaks that remain on the table—i.e. it rolls them back first for high-income people. But there aren’t enough of those preferences to offset the benefits that high-income households get from the rate reductions. As a result, a revenue-neutral reform within these constraints would cut taxes at the high-end while raising them in the middle and perhaps bottom.

What should we infer from this result? Like Howard Gleckman, I don’t interpret this as evidence that Governor Romney wants to increase taxes on the middle class in order to cut taxes for the rich, as an Obama campaign ad claimed. Instead, I view it as showing that his plan can’t accomplish all his stated objectives. 

What?! So a politician will break campaign promises? I guess the Journal considers that to be one assumption too far.  

Mathematically Possible [WSJ]
Understanding TPC’s Analysis of Governor Romney’s Tax Plan [TaxVox]
Why Romney’s Tax Agenda Doesn’t Add Up, Even if it Isn’t a Middle-Class Tax Hike [TaxVox]

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