Policy

The Real Story About Romney’s Tax-Cut Plan


Republican presidential candidate Mitt Romney speaks during the first Presidential debate at the University of Denver.

Photograph by Chip Somodevilla/Getty Images

Republican presidential candidate Mitt Romney speaks during the first Presidential debate at the University of Denver.

At times the Oct. 3 presidential debate resembled a restaging of Monty Python’s “Argument Clinic” sketch—the one in which the two combatants spend the whole time saying “Yes, it is” and “No, it isn’t.”

For viewers at home, the most frustrating interchange was over Republican candidate Mitt Romney’s tax-cut plan. President Barack Obama repeatedly said Romney was proposing a $5 trillion tax cut, and Romney repeatedly said he wasn’t. Obama said Romney couldn’t cut taxes as much as he wants to without increasing the budget deficit. Romney said he could. It was a lot of “automatic gainsaying of anything the other person says,” as the Monty Python skit had it.

What’s the real story here? I asked the experts at the Tax Policy Center, a joint project of the Brookings Institution and the Urban Institute. The Tax Policy Center has been accused by some Republicans of being unfair to Romney, but its goal is to be nonpartisan and its methodology is straightforward: It just adds up the numbers.

Romney started out modestly enough. The tax-cut plan he unveiled last winter probably would not have increased the deficit. But after several of his rivals for the GOP nomination came out with big tax cuts, Romney issued a more aggressive tax-cutting plan in March that would cut individual income tax rates an additional 20 percent. It involved, as Obama correctly said, approximately $5 trillion in reduced tax receipts over 10 years.

Romney said at the time that he could make up for the lost revenue from his tax cuts by “broadening the base”—i.e., eliminating various deductions and exemptions for upper-income Americans and preserving only those related to savings and investment. It’s a point he made again in the Oct. 3 debate.

But the numbers don’t add up. An August analysis by the Tax Policy Center found it was mathematically impossible (PDF) for Romney to simultaneously cut taxes on upper-income households, keep middle-income tax burdens from rising, and prevent an increase in the budget deficit.

Some Republicans have criticized the Tax Policy Center for failing to give Romney’s plan credit for engendering higher economic growth, which would increase tax revenue. But Roberton Williams of the Tax Policy Center told me that even building in the growth assumptions supplied by Romney’s economic advisers didn’t close the gap.

During the debate, Romney hinted at some ways he might broaden the tax base and thus reduce the deficit. According to Williams, they weren’t nearly enough: “It’s a suggestion of a piece of a plan to start addressing the revenue problem,” he said. Williams’s colleague, Howard Gleckman, said Romney was even vaguer in the debate than he was a few days earlier about one idea he’s floated: capping tax deductions at $17,000. “In the debate, he mused about capping deductions, not at $17,000, but at $25,000 or $50,000,” Gleckman wrote in a blog post. “This is no trivial difference.”

The bottom line: Romney proposed an extreme tax cut last spring to help him win the Republican nomination. Now that he’s the candidate, he’s having trouble making the numbers work.

Coy_190
Coy is Bloomberg Businessweek's economics editor. His Twitter handle is @petercoy.

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