How Romney Should Talk About Tax Reform

Recently, I had an informal exchange with a few colleagues regarding how the Romney campaign should talk about tax reform. There are many specific ideas as to how we might finance a reduction in marginal tax rates, most of which involve curbing various tax expenditures, yet the Romney campaign has been reluctant to get too specific about which tax expenditures it would reform, scale back, or eliminate. This strikes me as entirely defensible, as a Romney administration would have to work with the next Congress to determine the ultimate shape of tax reform. A legitimate criticism, however, is that the Romney tax proposal is thus “one-sided,” as Matt Yglesias argues. It specifies rate cuts and it specifies that it aims to remain distributionally neutral, yet as a new New York Times article by Annie Lowrey and David Kocieniewski reminds us, these two requirements are hard to reconcile. (I do wish that the article had referenced the many additional ways in which the Obama administration has changed and intends to change the tax code, e.g., the tax increases associated with the Affordable Care Act, the call for limiting the value of deductions to 28 percent for high-earners, etc.) Martin Feldstein’s effort to reconcile these commitments led him to set the upper bound of middle-income households at $100,000 rather than the $200,000 used the Tax Policy Center, which is for obvious reasons very politically sensitive. 

The most straightforward way out of this dilemma would be for the Romney campaign to state that its basic tax policy goal is to broaden the base and to lower rates without increasing the tax burden on middle-income households, and it will do what is necessary to achieve this goal. If this means that the marginal tax rates go down by less than 20 percent, so be it. The obvious downside is that the prestige media will attack the Romney campaign for yet another “Etch-a-sketch” moment.

This isn’t the tax policy debate we should be having, in my view. The first Romney tax proposal neatly sidestepped these issues by calling for the preservation of the Bush-era tax rates with the exception of a sharp reduction in capital income taxation for middle-income households as a first step towards comprehensive tax reform. This was vague, yet it did justice to the fact that presidents don’t decide on tax policy unilaterally and it preserved room for maneuver. Had the Romney campaign centered its tax message on a greatly expanded child tax credit that could be used to offset income and payroll taxes, I suspect the last few months would have looked very different.

Regardless, the basic goal of broadening the base and lowering marginal tax rates is entirely defensible, and the Romney campaign has no need to shy away from it. What it needs to do is make clear which commitments are actually non-negotiable — e.g., protecting the interests of middle-income households — and which are not.

Reihan Salam — Reihan Salam is executive editor of National Review and a National Review Institute policy fellow.

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