Bill Clinton is Dead Wrong About the Romney Tax Plan (Obama, Too, of Course)

Business Insider’s Henry Blodget thinks he has Mitt Romney’s number:

Well, we’ve taken a hard look at this plan, and we just can’t make the numbers work. Even when making very pro-Romney assumptions about growth and loophole elimination, we found that the Romney tax plan will radically increase the debt and deficit.

The Tax Policy Center, which is a non-partisan organization, also couldn’t make the numbers work. The TPC concluded the plan is ”mathematically impossible” unless Romney raises taxes on the middle class.

Yes, some Romney advocates have argued that the plan will work, but even some of them concluded that the plan would increase taxes on people that Romney considers middle class (those earning between $100,000 and $250,000).

Seeking to head off the Romney surge, the Obama campaign has now put out an ad starring the Democratic “explainer in chief,” Bill Clinton, explaining why Romney’s tax plan won’t do what he says it will do.

Clinton concludes:

  • The richest Americans, those making over $3 million a year, will get a $250,000 tax cut

  • Middle-class families will get an average tax increase of $2,000

A few problems here, as AEI’s Alex Brill has noted. Both Brother Blodget and President Clinton refer to the Tax Policy Center study which estimates that the Romney plan would a) reduce the tax payments of high-income earners by $86 billion in 2015 and thus b) revenue neutrality would then require an $86 billion tax increase on the middle class.

But that $86 billion is actually just $41 billion when you take into account base broadeners TPC forgot about. And Romney doesn’t count paying for the repeal of various Obamacare taxes as part of his revenue neutrality goal via tax reform. (That would be part of healthcare reform.) So now the gap is down to $12 billion, or just 0.3% of forecasted 2015 revenue. I would call that close enough for government work. Still, even if GDP growth were just  0.1 percentage point faster per year as a result of Romney tax reform, the additional revenue in 2015 would be approximately $13 billion.

Now you could raise legit questions about the political math of the Romney plan, but the policy math works. Let me also add that the U.S. corporate rate is so far on the wrong side of the Laffer Curve that a big rate reduction there could well pay for itself, freeing up the elimination of corporate tax breaks to help pay for individual reform, as happened during the 1986 tax reform. Romney doesn’t factor that in, but I would.

Oh, and the Joint Tax Committee just released a study critical of the idea of paying for lower rates than base broadening. Here’s why it is flawed.

  1. Chris Johnson

    I was told there would be no math, this evening.

    Which is why it is still nice to see a few conceptual brushstrokes applied to the debate.  At least there is a policy direction proposal.  We all know what eventually comes out of Congress will look quite different.

    The two policies on the table are raising tax rates on the only people that already pay taxes, or adjusting rates down neutrally.  That’s enough for a policy distinction.

    The ultimate outcomes will depend more upon the elections in the House and the Senate.

  2. Southern Pessimist

    James, I read the links and think you are correct in asserting that adjusting tax rates while streamlining  deductions can create more revenue and increased business growth especially in the corporate realm but in terms of corporate tax policy, what do you think of proposals to replace the entire regimen of corporate taxes and deductions with an 8%  consumption tax. That was in Ryan’s original roadmap and seems like a great idea to me. Your thoughts?

  3. Devereaux

    The argument that no one quite makes is that the government has to stop spending money! While it isn’t a difficult concept, it appears a difficult idea to actually broach. But should anyone actually say that, they will immediately be assailed by all the liberal hyperbole about issues that government shouldn’t be involved in anyway. Imagine stating that government shouldn’t be doing “public aid”. Oh the humanity!

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