Oct 25, 2012 at 5:53 am
Running around NYC today, debating political economics and enjoying as much of the food as I can given tightness of both schedule and waistline.
In a debate we had earlier today, leading Romney economist Glenn Hubbard pushed back on my TPC/arithmetic inspired critique of their tax plan by pointing that the Simpson-Bowles (S-B) plan proved that rate-lowering, base-broadening tax reform is possible. As I responded, OK, but that’s not what you guys are proposing.
First, unlike S-B, Romney takes an important part of the base off the table before we start: he has assured us that the preferential treatment of capital gains and dividends is off the table. S-B, in their illustrative proposal, treat them as ordinary income (something I’ve advocated for a long time, FWIW). The cost to the Treasury of these exemptions is almost $100 billion in 2012 alone, so we’re talking real money here.
Second, as one can see right there in Table 8 of the S-B report, the base-broadeners in their plan raise the middle-class tax bill by $722. Now, you might be OK with that…S-B is clearly OK with that…and many in this debate reasonably argue that at some point, taxes on households below $250K will need to rise.
But that is decidedly not the argument of Romney and Ryan who claim that their plan will not lead to higher taxes for the middle class (the above result is for the middle fifth; for the next higher fifth, the tax bill goes up $1,193).
I pleaded with Glenn, who is a reasonable guy and a smart economist, to explain how this thing works—how you can cut rates by 20% across the board, claim revenue neutrality, and offset the costs while protecting investment income and the middle class.
His response was to cite Simpson-Bowles. Problem is, they’ve still got a math problem because Simpson-Bowles ≠ Romney.
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