Sunday, August 5, 2012

Romney, Klein, and the Tax Policy Center

            This week the skin came off the Romney tax plan, and by extension the entire Republican economic agenda, and the grizzly gore under it was sickening.  It would shift the burden of taxes away from the rich and toward the middle class, and it would devastate the budget for many years to come.  I’m being blunt, of course, where journalists like Ezra Klein have been polite.   Mr. Klein and I are both looking at a document produced by the Tax Policy Center, which you can download here, that looked closely at the Romney tax plans and concluded that the only possible way they can work is to raise taxes on the middle classes by a substantial amount, and even that analysis bends over backward to give the plan the benefit of every theoretical doubt. 

Oh, I know, the Romney campaign will find ways to present it all in a better light.  They are already claiming that their plan will create a massive bloom of growth that will improve revenues, and enable it all to work.   We have not the slightest reason in theory or data to believe them.  And they will be astonished to hear that Klein’s piece can be called polite.   But it was: Kein could have been much, much more scathing.   He should have been, and so should the whole of the journalistic world.   But journalists are careful to maintain their image as impartial, non-partisan reporters, and in the cold grip of that constraint they end by failing to report anything like a true image of the world as it is, or even as they see it, but instead report the image of the world that will make the fewest people angry and create the fewest complaints from right or left.  There’s no doubt that in recent years the right has spent more hours and more decibels than the left has in complaining about partisan bias in the “lame-stream media”.  Telling the unvarnished and compelling truth about the Romney plan as it has been stated would enrage the right even further, so journalists avoid doing it.

The problem with the Romney plan is the same as the problem with a lot of so-called plans: the Romney team has put forward a list of policies that fulfill their personal desires, and promised to pay for them with wishful thinking.  Romney promised to cut taxes across the board by 20%, and to make up the losses from that by a combination of “base broadening” and a magical blossoming of the economy.  "Base broadening" is a way of saying that he will try to raise revenues by eliminating some tax exemptions and tax deductions.  But he has also said he will not raise taxes on capital gains or dividends, or on inheritance, and will reduce the corporate income tax as well.  So what exemptions and deductions are left on the table?  He won’t say---and that reluctance is a massive red flag wherever you find it.    Because the exemptions and deductions that remain mostly benefit the middle class.  See here for the Forbes list of the 10 biggest individual tax expenditures and here for an excellent discussion of them.  They include deductions for employer paid health insurance and contribution to employer paid pensions, mortgage interest deductions, deductions, the earned income tax credit, deductions for state and local taxes, for defined contribution (401K) plans, and so on. 

The basics are clear.  The plan Romney has outlined will benefit only the wealthy if it benefits anyone at all.  And it may not benefit anyone, because it will both dramatically increase the deficit, and very probably, through quick and large austerity measures, will induce a second dip into a recession in which even the wealthy will suffer losses. 

I’m not in love with all of Obama’s economic policies over the last few years either.  They’ve been tentative and distracted.  But the issue here is not so much that Romney’s plan is wildly unrealistic, and that the arithmetic doesn’t work.  I think the issue is that Romney knows that his plan wildly unrealistic, he knows the arithmetic doesn’t work, and he thinks that he’ll be able to develop and adopt a more realistic plan after he wins office.  I think the real, underlying game that he and his advisors are still playing, the final plan, is the “etch-a-sketch” plan where he can play one character during the primaries, erase that and “pivot” to a new character during the general election, and then erase that character and everything it said to “pivot” to still a different character when he wins. 

But he’s having trouble erasing that etch-a-sketch character from the primaries: the Republican base won’t let him do it.  And I think he’ll face the same problem if he is elected in the fall.  The Norquistians are already salivating at the prospect of an all-Republican government, with Republicans in control of the House, the Senate and the White House.  Their glee is not just from some partisan pride of conquest, but because they think they can finally adopt a pure Ayn Rand budget plan, a plan even more wildly unrealistic than the one Romney is promoting as a campaign theme on his etch-a-sketch: they want to pass the Ryan plan, or something like it.  It’s not Romney’s plan specifically, but Romney has repeatedly praised it over the course of this long campaign.  If Romney tries to avoid implementing it he will face full rebellion in the Republican held House (and if Romney wins both the House and the Senate will surely also go to the Republican party).  That body will pass the Ryan plan, as it has before, and sometime in January or February the newly Republican Senate will pass it too, by reconciliation (meaning there can be no filibusters from those pesky Democrats).

Does Romney really think that he can get away with vetoing the plan he has repeatedly praised during the campaign?  How will he erase his etch-a-sketch and “pivot” to a more realistic plan when Congress presents him with the Ryan budget a month after he takes office?

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