“Implausible Assumptions”: Mitt Romney’s Tax Promises Are Mathematically Impossible
The sub-campaign to define Mitt Romney’s tenure at Bain Capital, as I never tire of pointing out, is merely about softening up the Republican nominee for the major fight of the campaign: Obama’s charge that his economic program is merely a retread of the Bush-era program of tax cuts for the rich. Over several months, Romney has laid the groundwork for his own defense. He has promised that his tax plan will not cut taxes for the rich (below the levels established under Bush). Recall that Romney’s old campaign line about how he wasn’t concerned about the very poor was also packaged with a supposedly parallel line about not being concerned about the very rich — neither group would receive any particular targeted benefit from his program.
Romney’s plan has been to hold together these promises by shrouding his tax and budget plans in a veil of secrecy. Romney has promised to reduce tax rates across the board by 20 percent, which would offer huge tax cuts for the rich. But he has promised to close unspecified deductions in the tax code so as to offset the cost, and leave the rich paying the same effective tax rate. Indeed, Romney has boasted about his strategy, noting that its lack of detail means it “can’t be scored,” and thus Obama can’t prove that his plan really would cut taxes for the rich.
But oh yes, he can.
The Brookings Institution and the Tax Policy Center today released a study of Romney’s proposals, insofar as they are known. The finding was simple. Romney’s promises, it found, are mathematically impossible. The amount of revenue available from tax deductions for the rich is smaller than the amount of revenue lost by cutting tax rates for the rich. Even if Romney sincerely scoured the tax code and wiped out every last tax break for the rich that he hasn’t promised to preserve (he has promised to keep in place tax incentives for saving, like the capital gains tax break), the rich will pay lower rates and a lower share of the tax burden.
It’s worth noting that the study embraces implausibly friendly assumptions as to how Romney would go about this. It assumes he would ruthlessly purge the tax code of breaks for the rich, even highly popular ones like the charitable deduction. It further assumes that, in order to wring every last penny out of the rich, Romney would cut off all deductions immediately for every dollar in income over $200,000 a year. (In reality, nobody would create a tax code that meant going from $200,000 a year to $200,001 would jack up your taxes by thousands of dollars — you would ramp up the tax deduction phase-in, which would reduce taxes for the rich even more. But the paper bends over backwards to grant Romney this implausible assumption.)
What’s more, the paper assumes that Romney’s plan would increase economic growth, meaning it wouldn’t have to find dollar-for-dollar replacements for all its lost income. To measure this cheerful scenario, the paper adopts a model created by Greg Mankiw — who is, of course, a Bush administration veteran and one of Romney’s main economic advisers.
Piling implausibly optimistic assumption upon implausibly optimistic assumption, the paper nonetheless concludes that Romney will cut taxes for the rich. That means it would result in some combination of higher taxes for the middle class or higher deficits. If you take Romney at his word that he would hold tax revenue steady at its current levels, then he would be implementing a significant shift in the tax burden from the rich to the middle class. 95% of all taxpayers would pay more taxes, in order to finance a tax cut for the most affluent.
And remember, this is assuming the most favorable possible case for Romney. Under more realistic assumptions — that he won’t close every single penny in tax deductions benefitting the rich, and that his plan won’t spur economic growth to the degree a Republican like Mankiw hopes it would — then the transfer from the non-rich to the rich would be even higher. All of which shows why, despite the constant drumbeat of conservative pleas for him to unveil more policy specifics, Romney is going to keep his proposals as vague as possible.
By: Jonathan Chait, Daily Intel, August 1, 2012
“Quasi-Suicidal”: Did Mitt Romney Pay Any Federal Taxes At All In 2009?
On the issue of Mitt Romney’s tax returns, my colleague George Will put it simply: “The cost of not releasing the returns are clear. Therefore, he must have calculated that there are higher costs in releasing them.”
The question is what could be in them that would be so damaging to the Romney campaign. Right now, the most popular theory is that Romney simply didn’t pay any federal taxes at all in 2009. As Joshua Green wrote, ” It’s possible that he suffered a large enough capital loss that, carried forward and coupled with his various offshore tax havens, he wound up paying no U.S. federal taxes at all in 2009.”
But the tax experts I’ve spoken to are skeptical. “Romney had a $4.8 million capital loss carryover coming into 2010,” says Edward Kleinbard, a professor of tax law at the University of Southern California. “So that means no capital gain income in 2009. If you look on the first page [of his 2010 tax return], though, he had lots of ordinary income (interest mostly), and dividends, which are taxed at the same rate as capital gains but which cannot be sheltered from tax by capital losses. So presumably he had some positive income tax in 2009.”
Roberton Williams, a senior fellow at the Tax Policy Center, agrees. “It’s unlikely that his taxable income was zero or even close enough to zero that his credits would zero out his tax liability completely,” he says.
But Daniel Shaviro, a tax professor at New York University, isn’t so sure. “I think there’s an excellent chance that [Romney] didn’t pay any taxes in 2008 or 2009,” he says. But to get from a small federal tax liability to no federal tax liability, Romney would have needed to engage in incredibly aggressive tax planning. Shaviro mentions picking loser investments to get some benefits from “loss harvesting,” unusual tax shelters, and a bevy of other stuff that, frankly, I don’t totally understand.
The overriding question, though, is why would Romney do any of this. As Shaviro says, “If you were running for president and in his position, wouldn’t you think of telling your transaction people not to take you down too low in 2008 and 2009?”
When I asked whether these kinds of structures were simply too difficult to cleanly unwind over a couple of years, Shaviro was skeptical. “The Caymans structures might take some time to unwind, and there might be tax planning issues about not screwing up the unwind too badly, but come on, the guy has been in public life since 2002 and was aiming for the White House from the start. Plus, suppose he had tax shelters in 2009 that created losses. It’s not complex not to do these deals – all you have to do is…not do them.”
For what it’s worth — and, since I haven’t seen Romney’s 2009 tax return, it’s not worth much — my guess is he paid some federal taxes in 2009. The sort of tax sheltering he would have needed to get to zero would be quasi-suicidal for a presidential aspirant. But his effective federal tax rate may only have been 3 or 4 or 5 percent, which would be nearly as bad as zero. Add in a couple of shelters that Romney fears would look particularly bad, and it’s probably enough to persuade him that enduring a bit of bad press for tax decisions people think he might have made is preferable to a media feeding frenzy over tax decisions he definitely made.
The question none of this answers is why Romney didn’t clean up his taxes in 2008 and 2009. But it’s always worth remembering that the people running for office are human beings who procrastinate and make bad decisions and get distracted by other things. And given that Romney moves in a world where aggressive tax planning is the norm rather than the exception, he might simply have failed to recognize what a priority simplifying his taxes really was. My hunch is that the person spending the most time wondering why Romney didn’t get his taxes in order in 2008 is…Mitt Romney.
By: Ezra Klein, Wonkblog, The Washington Post, July 17, 2012
“The Man Without a Past”: Mitt Romney, A Barbarian At The Gate?
Mitt Romney has an identity problem. He is running for president by making promises about America’s future, but as a man who is largely without a past. Not only has Romney renounced many of his previous positions — on abortion, immigration, gun control, climate change, and the individual mandate he once championed as Massachusetts governor. He also refuses to divulge many details about what even he has said is his main qualification for the White House in a faltering economy: his successful career in “private equity” from 1984 to 1999 (or thereabouts).
What is it about the private equity world that Romney doesn’t appear eager to bring up? As I explain in an article in the current issue of National Journal, “Mystery Man,” Romney was basically what used to be known as a “barbarian at the gate.” The term “private equity” sounds respectable, but it is a euphemism for the old leveraged buyout deals we remember from the 1980s, the era of corporate raiders like T. Boone Pickens and Henry Kravis. After junk-bond king Michael Milken, who funded a lot of those takeovers, went to jail, the industry decided to rename itself in order to remove the taint.
This is Mitt Romney’s true world. As the founder of Bain Capital, Romney became a brilliant LBO buccaneer who specialized in buying up firms by taking on a lot of debt, using the target firm as collateral, and then trying to make the firm profitable — often by breaking it up or slashing jobs — to the point where Bain and its investors could load up the firm with even more debt, which Bain would then use to pay itself off. That would ensure a profit for Bain investors whether or not the companies themselves succeeded in the long run. Often, burdened by all that debt, these bought-out companies did not succeed, costing thousands of jobs as they were downsized, sold off and shuttered. Other times they did phenomenally well, as in the case of Sports Authority and Domino’s Pizza.
But job creation is irrelevant to Bain’s business model, which is all about paying back investors. Nor does the long-term fate of the companies that private-equity firms buy up matter crucially to Bain’s bottom line (though of course success is better). The only real risk for Bain is that these companies fail to make enough initial profit in order to permit Bain to pile on more debt and extract a payout, so that it can make back its investment quickly.
Though he started off dabbling in less profitable “venture capital,” Romney quickly saw the high-return, low-risk potential of LBOs in the mid-1980s and ultimately was involved in about 100 such deals, which made him a true Wall Street tycoon. He then maximized his take further by socking away his gains in offshore shelters from Bermuda to the Caymans and using capital gains tax breaks and loopholes to reduce the rate of his 2010 tax return (the only one he’s released) to 13.9 percent, a far lower rate than the one paid by middle-class Americans. Many of Wall Street’s big dealmakers do the same with their profits, employing whole teams of international tax accountants.
But none of these dealmakers has ever run for president. This is perhaps the main reason for Romney’s reticence: It’s not just that being honest about Bain’s real business pulls back the veil from the ugly heart of financial capitalism. It’s also that this may be the hardest year since 1932 for a Wall Street big-shot to make a bid for the White House: The former Masters of the Universe remain unpopular because of the historic recession they did so much to create. So it’s hardly a surprise that Romney won’t dwell on practices that his onetime GOP primary opponent, Texas Gov. Rick Perry, labeled “vulture” capitalism.
None of this is necessarily disqualifying for a presidential candidate; on the contrary. Americans have always admired business success, no matter what package it comes in. It is part of the nation’s lore going back to the rags-to-riches tales of Horatio Alger and F. Scott Fitzgerald, and the storied careers of Andrew Carnegie and J.P. Morgan. Romney is undoubtedly one of the most successful capitalists ever to run for president. Based on his record at Bain, as governor, and at the Olympics, there is little doubt that he is a numbers whiz who is handy with a budget, and America has serious budget problems. “At the end of the day, people are going to know Mitt Romney was a super-successful businessman, and they’re going to factor that in,” says Vin Weber, a senior Romney adviser. “And most people will find that attractive and not negative.”
Maybe so. But as the Obama attacks persist, even some in the Romney camp fret that they are watching a Democratic version of the attacks that permanently defined Michael Dukakis as weak in 1988 and “Swift-boated” an unresponsive John Kerry in 2004. “That worries me a little bit,” Weber admits.
The Obama attacks also may be resonating because they compound an image of aloofness, of detachment from the lives of ordinary Americans, which has dogged Romney for many years. He is hardly the first rich man to run for president, yet he lacks the populist touch of previous successful candidates. Franklin Delano Roosevelt also came from a wealthy patrician family, but by the time he ran for president as a polio victim who had suffered among the people in Warm Springs, Ga., FDR had reputation for transcending that background. So did John F. Kennedy, whose father’s vast but somewhat shady Wall Street fortune financed a rich-kid bid for Congress, the Senate, and then the presidency. But JFK’s charisma and war-hero reputation, and his ability to connect with people — for example, by famously telling a hushed crowd of mothers who had lost sons in World War II that “I think I know how you mothers feel, because my mother is a Gold Star mother too” — made him a popular figure.
Not so Romney. His record contains few such man-of-the-people moments (ironically, his best argument may be his successful health-care law in Massachusetts, another thing he doesn’t want to talk about). And his uncommon Mormon religion, about which he is also reticent, further contributes to the image of a Man Hard to Know. This is the same Romney who declared during the hard-knocking primaries that the $350,000 he earned in speaking fees wasn’t a lot of money, who said that his wife drives a “couple of Cadillacs,” who grinningly bet Rick Perry $10,000 on a whim, and who boasted that even wealthy Ted Kennedy had to “take a mortgage out” to beat him. And those are moments when Romney was trying to be one of the guys. What has become clear is that he is part of a world of super-elites who live in a universe apart from most Americans.
Romney may well make a very good president. But we should know who we’re getting.
BY: Michael Hirsh, The Atlantic, July 21, 2012
“Restoring Economic Mobility”: A Challenge To Conservatives
It’s good that conservatives are finally taking seriously the problems of inequality and declining upward mobility. It’s unfortunate that they often evade the ways in which structural changes in the economy, combined with conservative policies, have made matters worse.
Occupy Wall Street, whatever its future, will always merit praise for placing inequality at the center of our politics. The biggest sign of the Occupiers’ success: Conservatives once stubbornly insisted that inequality wasn’t a problem because the United States was the land of opportunity and upward mobility. Now they are facing the fact that we are by no means the most socially mobile country in the world.
Reports from the Organization for Economic Cooperation and Development and others show that social mobility is greater elsewhere, notably in Denmark, Australia, Norway, Finland, Canada, Sweden and Germany.
What do these countries have in common? Not to put too fine a point on it, all have national policies that are, in right-wing parlance, more “socialist” or (to be precise) social democratic than ours. They guarantee their citizens health insurance. They have stronger union movements and more generous welfare states. They tend to keep higher education more affordable. In most cases, especially Germany’s, they have robust apprenticeship and job training programs. They levy higher taxes.
The lesson from this list is not that cutting back government, gutting unions and reducing taxes on the rich will re-create an America of opportunity. On the contrary, we need more active and thoughtful government policies to become again the nation we claim to be.
We also need to be more candid about the large forces that are buffeting the American middle class. Writing in The Nation about Timothy Noah’s excellent new book, “The Great Divergence,” William Julius Wilson, the distinguished Harvard sociologist, nicely summarized the factors Noah sees as explaining rising disparities of wealth and income.
They included “the increasing importance of a college degree due to the shortage of better-educated workers; trade between the United States and low-wage nations; changes in government policy in labor and finance; and the decline of the labor movement. He also considers the extreme changes in the wage structure of corporations and the financial industry, in which American CEOs typically receive three times the salaries earned by their European counterparts.”
Most conservatives accept the importance of education but then choose to ignore all the other forces Noah describes.
Recently, my friends David Brooks and Michael Gerson used their columns to address the decline in mobility. It’s to the credit of these two conservatives that they did so, yet both found ways of downplaying the challenge inequality poses to conservatism itself.
Brooks cited a fine study by Robert Putnam, also a Harvard scholar, noting that the different parenting styles of the upper middle class and the working class are aggravating inequalities. Brooks’s conclusion: “Liberals are going to have to be willing to champion norms that say marriage should come before child-rearing and be morally tough about it. Conservatives are going to have to be willing to accept tax increases or benefit cuts so that more can be spent on the earned-income tax credit and other programs that benefit the working class.”
Yes, parenting (including the time crunch that two- or three-income working-class families face) is part of the issue, which is why I also admire Putnam’s study. But the balance in Brooks’s call to arms is entirely false. It’s not 1969 anymore. Progressives — including Wilson, Barack Obama and, if I may say so, yours truly — have been talking about the importance of family breakdown for decades. Brooks rightly acknowledges the need for measures to help those skidding down the class structure. The barrier here is not liberal attitudes toward the family but conservative attitudes toward government.
Gerson also said sensible things about promoting a “broad diffusion of skills and social capital” but then closed by accusing liberals of wanting to “soak the rich” and insisting that “economic redistribution is not the answer.”
Actually, liberals are not for “soaking the rich,” unless you consider the Clinton-era tax rates some kind of socialist bath. And as the experience of the more social democratic countries shows, a modest amount of “economic redistribution” — to offset the radical redistribution toward the very rich of recent decades — can begin the process of restoring the kind of mobility we once bragged about.
My challenge to conservatives worried about inequality is to follow the logic of their concern to what may be some uncomfortable conclusions, especially in an election year.
By: E. J. Dionne, Jr., Opinion Writer, The Washington Post, July 15, 2012
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