Sunday, October 7, 2012

Romney's deficit plan

I was going to suggest that if Romney claims, again, that his budget won't result in a 10 year additional deficit of $ 5 trillion, that Obama might begin a reply like this:

(The President takes the "T" for "Time Out" sign with his hands):

Wait just a second. We should be able to do the math here, and I for one am not afraid of numbers. (He pulls out a calculator from his pocket) In this case, it's not rocket science, so here goes. The total amount of income taxes Americans pay is (quotes the figure). Mr. Romney wants to cut taxes by 20% ...

However, I started to look at the financial analysis from the Tax Policy Center I realized that the math was not a simple as I had hoped. If one simply looks at the amount paid by Americans in Federal income tax last year -- about $1.1 trillion -- and cut that by 20% and multiply by 10 (for ten years) you don't get $5 trillion -- only somewhat half of that. But that's not the whole story. First of all, Romney's plan includes continuation of the Bush Tax Cuts, will will soon expire. There is little chance that they will be renewed in toto since the Dems won't agree nor will Obama if he is still President. So, the $1.1 trillion in income tax revenue will be a much higher figure to reduce by 20%. But the Romney budget has lots of other cuts -- to inheritance taxes and to certain charges on the health plans for high income people under ObamaCare. Also, there's the Alternative Minimum Tax on millionaires which Romney's plan would eliminate. There's lots more technical stuff as well. If you click on the link above you can read it yourself. The upshot is that, although the $5 trillion seems correct, it's not easily demonstrable.

So, whipping out a calculator won't really work. Nevertheless, nearly all sources I've read agree with the results of the TPC analysis. Even the Cato Institute can only dispute the TPC analysis by complaining that it doesn't take into account the boom in the economy (hence in tax collections) that they claim will result from more tax cuts. Of course, this is not fair for two reasons: (a) the TPC is just analyzing the cost on paper of the cuts because (b) neither it nor the Cato Institute can predict the future. Yes, certain tax reductions can stimulate the economy -- that's what some of Keynesian theory can be applied to -- but that isn't always the case. In fact, the Bush Tax Cuts, in conjunction with a lot of other bad policy, led to busting not booming the economy, and to one of the slowest and briefest recoveries from a recession ever; it also converted a Clinton tax surplus into years of terrible deficits.

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