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Romney and Tax Reform



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Fred Barnes and Lawrence Kudlow have each urged Mitt Romney to come out for what the former calls “sweeping tax reform.” The editors of the Wall Street Journal have run a series of editorials including this advice. It’s a great idea, in theory. But each specific tax-reform idea comes with pitfalls. Here are his options.

1. He can go for a reform that dramatically reduces the top tax rate and cuts taxes on investment, but would be scored (in two senses of the word) as a big increase in the deficit. If he chooses this option, he could mitigate the increase in the deficit by coming out for more spending restraint–but the amount of entitlement reform needed to get the budget into sustainable balance without additional large tax cuts is already a hard sell to the public.

2. He can embrace a revenue-neutral reform that includes those pro-growth policies but makes up the revenue by increasing taxes on the middle class generally or large, politically important segments of it such as parents.

3. Romney can avoid either of these two drawbacks by adopting something like the Stein plan. It expands the child credit to help middle-class families and cuts tax rates on investment, but makes up for the revenue forgone by scaling back tax breaks and lowering the floor for the top tax bracket. The expanded child credit polls extremely well, but would be attacked by the Wall Street Journal’s editors and other conservative journalists, think tankers, and activists. Some conventional economists on his own staff would surely balk as well.

4. Don’t come out for any specific big tax reform. The downsides here are that you give up the chance to excite conservatives who want one or to deliver any tangible benefits to voters.

Regular readers will know I hope he opens door number 3 eventually, but it might make sense to linger at door number 4 for a while. If I were him, I’d definitely wait at least until after Obama’s State of the Union address and budget proposal (and maybe all year, while pledging to work with Congress on a pro-family, pro-growth tax reform plan).



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