Josh Barro of Bloomberg View has taken a careful look at the various arguments that have been deployed in defense of Mitt Romney’s tax proposal and he finds them wanting. I think Josh makes a strong case. One of his strongest arguments is that any limit on individual tax expenditure benefits would have to be phased in so as not to raise effective marginal tax rates to dramatically for earners crossing the threshold from $199,999 to $200,000. Moreover, he notes that Martin Feldstein’s case in favor of something like the Romney tax proposal relies on raising taxes for households earning between $100,000 and $200,000, a large and politically influential group that both the Romney and Obama campaigns have pledged to shield from tax increases.
Josh’s analysis reinforces my view that it is highly unlikely that a Romney administration would cut the top marginal tax rate as deeply as it has proposed. I believe this in part because Romney’s original tax plan kept the Bush-era tax rates, and because I find it hard to imagine that Romney would want to expend precious political capital on deep high-income rate reductions. I do think, however, that he would be keen to prevent the top marginal tax rate from rising significantly, which is a salient difference from a second Obama term.
Liberal critics, in contrast, tend to think that Romney prioritizes the rate cut for high-earners over revenue neutrality and preventing tax increases for those earning less than $200,000. I don’t think we can dismiss this view out of hand, but I consider it less likely for the simple reason that the political cost of prioritizing the rate cuts for high-earners over shielding under-$200K households would be much higher than the political cost of scaling back or even abandoning the proposed cut to the top marginal tax rate, even among Republican primary voters. Democrats could effectively attack a Romney White House for raising middle-income taxes. They would have a harder time capitalizing on a Romney failure to cut the top marginal tax rate.
There is a parallel consideration for those considering a vote for the Obama-Biden ticket. As David Brown, Gabe Horwitz, and David Kendall of Third Way have recently argued, it is very difficult to achieve significant deficit reduction through tax increases on high-earners alone. Though the Obama administration has pledged to pursue entitlement reform measures, and though it has suffered the political consequences of proposing administrative reforms designed to curb the growth rate of future Medicare expenditures, its proposed tax increases aren’t big enough to meet its long-term spending commitments. (Moreover, I think that President Obama’s likely approach to raising taxes beyond the levels he has currently proposed would prove harmful to U.S. growth prospects.)
All in all, my sense is that both major party presidential campaigns are understating the extent to which taxes will have to increase in the coming decades, barring a transformative change in the risk-aversion of the median voter regarding health entitlement reform.
Because I’m pretty confident this conclusion won’t satisfy partisans — my fellow partisans on the right and my interlocutors on the other side of the aisle — I will write a follow-up.