Several weeks ago, the Tax Policy Center released a study examining the broad implications of Mitt Romney’s tax plan to lower rates, eliminate tax deductions, and not increase the deficit. They concluded that it would be impossible to do so in a way that wouldn’t make the U.S. tax code more regressive, since all of the deductions afforded to high-income households aren’t enough to make up for the revenue losses from rate cuts. There are a few legitimate quibbles with the study, but the main conservative rebuttal has been wrong-headed: Defenders have claimed that the study doesn’t take into account the economic growth “unleashed” by the marginal rate cuts; they actually do have a dynamic scoring scenario (using Greg Mankiw’s numbers for the feedback from income-tax rate cuts) and it still doesn’t make the numbers add up. Thus their conclusion is basically stubborn math, but liberals vastly overstated what the paper implied, claiming that it would mean that Romney intended to raise taxes on the middle class, that his tax plan was primarily written to benefit the rich (despite the fact that he claims he’ll structure it progressively), etc. In fact, the distortions are such that the TPC has now issued a “Frequently Asked Questions” document clarifying what exactly their study meant. They explain:
Q: How can you analyze Governor Romney’s proposals when there is no fully-specified Romney tax plan?
A: We acknowledge upfront, here and in the earlier paper, that Governor Romney has not fully specified his tax plan. But it is still possible to examine the broad implications of the five goals noted above, which derive from information he and his campaign have made available. We analyzed the implications of those five goals; we chose the most progressive route for financing his stated choices, given how much revenue can be raised by broadening the tax base that is available after accepting the five goals.
Q: Did you say that Governor Romney wants to raise taxes on the middle-class?
A: No. We said that simultaneously achieving all five of the tax goals stated above would result in lower taxes for high-income households and thus – because of the revenue-neutrality constraint – would require raising taxes on other households.
Q: Did you say that revenue-neutral, distributionally-neutral tax reform is mathematically impossible?
A: No. We said that revenue-neutral, distributionally-neutral tax reform was mathematically impossible under the five goals listed above. It is, of course, possible to achieve revenue-neutral, distributionally-neutral tax reform, but that would require giving up one or more of the five goals. We discuss differences between the Romney proposals on the one hand and the Tax Reform Act of 1986 and the Bowles-Simpson proposals below. For instance, one key difference between the Romney proposals and the two broad-based reform proposals is that under TRA 86 and the Bowles-Simpson plan capital gains and dividends are taxed as ordinary income.
It’s not the TPC’s job to conclude the following, but the obvious and fair-minded political reading of the dynamic they explain is that, of the Romney plan’s goals, you can probably assume, if they are to push a tax plan like the one they’ve proposed, that the “deficit neutral” clause will be ignored (or explained away), such that the proposal will turn out to maintain progressivity, by reducing rates for all Americans and only reducing some deductions for some high-income earners.