Why Romney’s Tax Plan Is Mathematically Impossible
So if you are going to “lower the rates and broaden the base” for the rich, you need to actually broaden the base for the tax expenditures that the rich receive. This will be true for all of these plans going forward, and especially for Romney’s. Otherwise, as the Tax Policy Center found, the exercise can’t actually work.
One question that the Tax Policy Center paper doesn’t address is whether the Romney plan is mathematically impossible, period. Would broadening the base on the third set of savings and investment income actually make the plan work? The 99 to 99.9 percent gain an average change in after-tax income of 3.5 percent, and the top 0.1 percent gain 4.4 percent, while everyone loses 1.1 percent under the Romney plan.
The answer may be found in another Tax Policy Center paper, “Distributional Effects of Individual Income Tax Expenditures: An Update” by Eric Toder and Daniel Baneman (p. 7), which indicates that eliminating tax preference for capital gains and dividends would reduce after-tax income by an average of 4.5 percent for the top 1 percent. That would get Romney most of the way to his goal, and perhaps removing exclusions for savings would make the entire plan work. If he lowered rates while broadening the base, however, reducing tax expenditures brings in less money. So even cutting the tax expenditures for the top one percent may still not make his plan work. It’s likely that these exclusions for savings and investments would be expanded, not cut, under any plan promoted by Romney and House Budget Committee chair Paul Ryan, but it is worth analyzing whether Romney’s plan could work at all, under any circumstances.
Mike Konczal is a Fellow at the Roosevelt Institute.
Cross-Posted From Rortybomb
The Roosevelt Institute is a non-profit organization devoted to carrying forward the legacy and values of Franklin and Eleanor Roosevelt.