Why Romney's Tax Plan is Mathematically Impossible

[Bill USA]

(emphases my own)

http://www.nextnewdeal.net/rortybomb/why-romneys-tax-plan-mathematically-impossible

The big news in campaign trail policy wonkery last week was the Tax Policy Center's white paper by Samuel Brown, William G. Gale, and Adam Looney arguing that it is mathematically impossible for the Romney tax plan to meet its described goals. Ezra Klein has write-ups here and here, and James Pethokoukis has analysis here. Since Romney hasn't released his plan, Brown, Gale, and Looney cleverly put together the best case scenario and crunch the numbers -- and conclude they don't work.

[font size="+1"]How is that? Romney's plan has three goals. It starts by lowering tax rates by 20 percent. It then seeks to keep raising the same amount of tax revenues as it did before by removing tax expenditures, or the variety of exemptions, deductions, or credits in the tax code that function as government spending. As the wonks would say, it wants to "lower the rates and broaden the base." [font color="red"]However, and this will be crucial, it excludes expenditures related to investment income and savings from being available for these cuts.[/font] [/font]Finally, it wants to maintain the current level of progressivity by making sure that the top one percent pays no less in taxes and everyone else pays no more. The Tax Policy Center analysis shows that it is impossible to do all three: enacting the Romney plan requires cutting taxes on the top one percent and raising them on everyone else.

In order to better understand why this is impossible we need a quick, back-of-the-envelope class and distrbutional analysis of how tax expenditures work in the United States. Tax expenditures are thought to be regressive, benefitting those with more resources. The general argument for why is because tax expenditures are closely linked with employment compensation or spending, so those who have jobs and get paid more or spend more benefit more. Being able to pay less in taxes disproporationately benefits those better off and those with the resources and ability to take advantage of often complicated tax planning. A privatized welfare state administered through these coupon-like mechanisms, compared to public ones, involve less compulsory risk-pooling and more individualized risk-bearing, which tends to benefit those who are better off.

But we can get more granular than that, and we need to in order to understand why Romney's plan fails. Let's take a quick look, using this great New York Times chart based on Tax Policy Center numbers, at who gains from different types of tax expenditures in the United States.



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the chart above can be a bit of overkill. Here is one that is simpler and sums his tax plan up nicely, it shows the net change in after tax income for different income groups and it assumes the tax scheme is revenue neutral (a big assumption as it is, in reality, likely to take away from the under $200K income group more than it gives, especially compared to the above $500K incomers. So 'Revenue Neutrality' is a pretty optimistic assumption):

[Angry Dragon]

1. Willard says: I am a republican, I do not need facts

prove I

[Bill USA]

2. Rmoney: "My tax plan doesn't work?...works for me ..Ha-ha-ha" ( image)