Mitt Romney has had a policy problem in this Presidential race for some time. He has promised a 20% across-the-board cut to individual income tax rates. Yet he has also promised that the the overall plan would remain revenue-neutral, particularly for the rich, because he will eliminate deductions and loopholes. The problem, aside from Romney never identifying which deductions he would eliminate, is that it’s mathematically impossible. There are not enough deductions to eliminate on the wealthy to compensate for the 20% reduction in tax rates. The deductions would have to be cut for the middle class as well, leading to a tax increase there.
The Romney campaign has said this is not their intention. But what if the numbers just work out that way? And, what if Congress refuses to make the deductions necessary to get to revenue neutrality? Kevin Hassett, an economic advisor to Romney, said that in that case, they would scrap the whole tax rate plan, essentially acknowledging that their promise is completely empty.
Yesterday, Kevin Hassett, an American Enterprise Institute economist and informal adviser to Mitt Romney, insisted that Romney would not raise taxes on low- and middle-income households in order to finance his promised 20 percent across-the-board rate cut. Nor would those rate cuts increase the deficit. Instead, Kevin predicted that if Congress did not trim tax preferences, Romney would scale back those rate reductions [...]
Kevin added, “If you think the base-broadeners don’t add up, if you think he can’t get to 28 percent, then the right thing that would happen, as you know, if you’re going to have a revenue-neutral reform, is that they would have a different change in rates.”
Romney has thus far refused to describe which tax credits, deductions, or exclusions he’d cut, insisting he’d leave that to Congress.
This just makes Romney’s tax plan self-refuting. It simply cannot reduce rates 20% and stay revenue-neutral without raising taxes on the middle class. Hassett says, in that case, rates won’t drop 20%. So there is no tax plan, then.
Meanwhile, Romney is really selling this tax plan with Mondale-like fervor out on the campaign trail.
“We have got to reform our tax system,” Romney said at a morning event here. “Small businesses most typically pay taxes at the individual tax rate. And so our individual income taxes are the ones I want to reform. Make them simpler. I want to bring the rates down. By the way, don’t be expecting a huge cut in taxes because I’m also going to lower deductions and exemptions. But by bringing rates down we will be able to let small businesses keep more of their money so they can hire more people.”
The comments were either a flub on Romney’s part or an admission that many of the deductions and exemptions that he will have to target in order to make his tax plan deficit neutral will end up affecting the middle class.
If there’s one thing that can fire up a crowd, it’s a Republican saying that he will cut taxes, but not too much, because he’ll raise other taxes on the same people. Who is that supposed to attract?
On policy and politics, this tax plan looks like a total mess.