Interpreting Romney on Taxes

by Reihan Salam

Mitt Romney has been criticized for having touted his call for deep cuts to marginal tax rates without specifying the base-broadeners he intends to use to pay for them to achieve revenue-neutrality while shielding middle-income households from tax increases relative to the current policy baseline. During last night’s presidential debate at the University of Denver, the former Massachusetts governor laid down a few markers:

So if the tax plan he described were a tax plan I was asked to support, I’d say absolutely not. I’m not looking for a $5 trillion taxcut. What I’ve said is I won’t put in place a tax cut that adds to the deficit. That’s part one. So there’s no economist that can say Mitt Romney’s tax plan adds $5 trillion if I say I will not add to the deficit with my tax plan.

This is Romney’s first priority: his tax overhaul will not decrease revenue levels relative to the current policy baseline. One assumes that he would be willing to take into account behavioral effects in making this assessment, but that can only make so much of a difference.

Number two, I will not reduce the share paid by high-income individuals. I know that you and your running mate keep saying that and I know it’s a popular thing to say with a lot of people, but it’s just not the case.Look, I’ve got five boys. I’m used to people saying something that’s not always true, but just keep on repeating it and ultimately hoping I’llbelieve it. But that — that is not the case. All right?

That is, the distribution of the federal income tax burden will not change such that high-income individuals will pay a smaller share.

I will not reduce the taxes paid by high-income Americans.

This is actually a somewhat different point, which implies that aggregate revenues derived from high-income Americans will not decrease relative to current policy. The high-income share can remain the same while the aggregate amount paid by high-income households can decrease. It would make sense for Romney to make this commitment, as it would be essential to achieving revenue neutrality, which he identifies as his first priority.

And number three, I will not under any circumstances raise taxes on middle-income families. I will lower taxes on middle-income families. Now, you cite a study. There are six other studies that looked at thestudy you describe and say it’s completely wrong. I saw a study that came out today that said you’re going to raise taxes by $3,000 to $4,000 on middle-income families. There are all these studies out there.

This is fairly straightforward. Romney appears to embrace President Obama’s stance on retaining the Bush-era tax cuts for households earning less than $250,000.

But let’s get at the bottom line. That is, I want to bring down rates. I want to bring the rates down, atthe same time lower deductions and exemptions and credits and so forth,so we keep getting the revenue we need. And you’d think, well, then whylower the rates? And the reason is because small business pays that individual rate; 54 percent of America’s workers work in businesses that are taxed not at the corporate tax rate, but at the individual tax rate. And if we lower that rate, they will be able to hire more people. For me, this is about jobs. This is about getting jobs for the American people.

Romney notes that he wants to bring down rates. He does not, however, specify that he will lower marginal tax rates by 20 percent. This implies that he is more flexible on the extent of the cut in marginal tax rates than he is on the other priorities he outlined, but of course this is speculative.

The Agenda

NRO’s domestic-policy blog, by Reihan Salam.