Romney Tax Plan Not Equal to Simpson-Bowles

October 25th, 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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5 comments in reply to "Romney Tax Plan Not Equal to Simpson-Bowles"

  1. NP says:

    “Reasonable” you have got to be kidding me – the guy who architected the Bush Tax cuts.

    The fact that he treats your question and pleading with disdain means Hubbard is not a “reasonable guy”. Unless you mean reasonable to cut Social Security and Medicare for the old and welfare for the young and poor – oh and give a huge tax break for the rich.

  2. JohnR says:

    It’s all Humpty-Dumpty Economics – when Hubbard et al use a number, it means just what they choose it to mean, neither more nor less. Your mistake, as with all those in what we call the reality-based community, is to assume that numbers have some empirical meaning, independent of political requirements. That’s not the way economics really works any more – we have Imperial Economics now, and when we act, we create our own numerical reality…

  3. Fred Donaldson says:

    The Bowles-Simpson (BS) chairpersons’ plan (not the approved plan of the commission) brings top contributors to Social Security down to about 60% of current benefits.

    When you realize that the top money contributed becomes a basis for benefit about half the amount of lower contributions today, you have to agree this is already a starkly regressive return and progressive cost situation.

    The CEOs don’t care if our benefit goes from $24k to $16k a year, about the same return as folks who contribute a third as much.

    Raising the retirment age will make more old people without jobs homeless, and raising the Medicare eligibility age will kill some folks.

    The details of BS are more revealing than the generalities of “fiscal cliff” and “live within our budget.” The reality is more wealth for the already wealthy and stark cuts to middle income Americans with some extra crumbs directed to the poor, so the media can focus on that and nothing else.

    Our greatest period of prosperity was the 50s, 60s and early 70s before deregulation, lowered income taxes for the wealthy and concerted success in breaking unions. More cuts to the middle class will move us even a greater distance from that era of capitalism’s “virtuous circle.”

  4. John T says:

    I just don’t understand how Romney and Ryan can get away with this. 20% tax cuts, increased military spending and a balanced budget. None of this adds up unless you go after the really big tax exemptions, as an example, the mortgage deduction. It’s time that this GOP ticket was called to account. ”Trust me, I’m a businessman” just doesn’t cut it.

  5. Sue says:

    “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.”

    I suspect that this is a HUGE deal for Romney and those wealthy whose primary source of income is capital gains and dividends, and the latter is a MUCH bigger deal than the former. Long-term capital gains tax rates are slated to rise from 15% max to 20% max if we go over the fiscal cliff, but the tax rate on qualified dividends will rise from 15% max to 39.6% max, almost tripling the amount of tax paid on those dividends!