“Mystical Economic Pixie Dust”: The Tax Trap Springs Shut On Romney
It’s all too easy to hyperventilate about the importance of this or that campaign development in an electorate where swing voters are few and pay little attention to the news, but Mitt Romney appears to have blundered his way into a bona fide political disaster with his tax plan. Republican policy elites and fund-raisers fervently believe, for both moral and economic reasons, in the paramount necessity of cutting taxes for the rich. This position is, however, a political trap; the vast majority of Americans want taxes on the rich to be higher, not lower, and the commitment to cutting taxes on the rich further requires larger entitlement cuts or higher middle class taxes, both of which are more unpopular still.
At the outset of his campaign, Romney tried to avoid committing himself, but by February, with GOP rivals outflanking him and facing steady pressure from Republican elites, he declared himself in favor of a 20 percent tax cut, a move greeted with joy from anti-tax activists. But he still attempted to hide the ball. Romney promised that his rate cut would be matched by closing tax deductions and some unspecified allowance for economic growth, and thus would not decrease the level (or the share) of taxes paid by the rich. Romney’s boast that his plan could not be scored revealed the essential calculation. But the campaign miscalculated. Yesterday’s study by the Brookings Institution and the Tax Policy Center showed that, even allowing for the faster growth predicted by Romney’s own economist, there aren’t enough tax deductions to account for the cost of the lower rates for the rich — raising taxes for the middle class would be the only way to make Romney’s promises add up. Romney didn’t hide the ball well enough.
Obama has already unleashed an ad making the simple and devastating point that Romney is proposing to cut taxes of people like himself and raise them on the vast majority of the public: http://youtu.be/r1D1jI61ckY
Romney’s play here is to turn the study’s findings into a matter of partisan dispute. It has mustered two arguments. The first is that the Brookings study cannot be trusted because its authors are biased. (Romney adviser Eric Fehrnstrom called the study a “joke.”) The Weekly Standard pushes this line, noting that one of its authors visited the White House twelve times. Unfortunately, Romney’s campaign itself once cited the Tax Policy Center (accurately) as “objective,” and its findings are basically simple math.
Romney’s second argument is more convoluted. The study examined the effects of Romney’s income tax proposals. He has also promised to reform the corporate tax code. Romney policy advisor Lanhee Chen argued yesterday that Romney corporate tax reforms could increase economic growth even more. So, even though the study allowed for optimistic growth assumptions of the income tax cuts, it didn’t also allow for optimistic assumptions of the corporate tax cuts.
Of course, Romney doesn’t really have a corporate tax reform plan. He says basically the same thing everybody says. The corporate tax code is filled with deductions and loopholes. The statutory rate (35 percent) is unusually high by international standards, but the effective rate is unusually low. We could lower the rate to, say, 28 percent, close a bunch of deductions and loopholes, and have a fairer tax code. That’s what Romney endorses, and it’s also what Obama endorses.
But the whole trick here is assembling an actual legislative coalition to pass a tax reform plan. The whole problem is that companies that benefit from loopholes and deductions lobby to keep them. Romney isn’t offering a policy blueprint for what deductions he would take away, let alone a plausible scenario to pass such a plan even if it did exist. He’s just using the mystical economic pixie dust of the nonexistent corporate tax reform plan in order to hold out the hope of some missing ingredient, some unmeasurable X factor, to keep his proposal in the safe dreamworld where the cruel tyranny of math cannot apply.
But the math is inescapable. When Romney looks back at the positions he adopted during the Republican primary — the hard line on immigration, the embrace of Paul Ryan — his pander to supply-siders may loom as his largest mistake.
By: Jonathan Chait, Daily Intel, August 2, 2012
“A-Dynamic Scoring”: Republicans Don’t Like The CBO, Except For When They Do
Rep. Tom Price (R-Ga.) has no shortage of charts, bullet points and studies to back up the GOP’s tax strategy, all of which he laid out Tuesday afternoon before a room of reporters. But, perhaps most prominently, Price wielded numbers from the Congressional Budget Office to make the case for extending all the Bush tax cuts permanently, as the House is poised to vote on this week.
“As the Congressional Budget Office has said, the growth rate if these [tax hikes] go into effect is 0.5 percent,” Price told reporters. “If we’re able to keep the rates the same, the growth rate is 4.4 percent.”
It’s not surprising that a legislator would rely on numbers from the CBO, given the office’s long-standing reputation as a non-partisan, independent scorekeeper. But in the next breath, Price dismissed another major finding from the very same number crunchers.
When asked how the GOP would make up for the huge increase in the deficit that would result from making the Bush tax cuts permanent—which the CBO estimates will reduce revenues by $4.6 trillion—Price flatly denied that the numbers were valid. “We don’t believe that keeping tax rates as they are right now costs money,” he said. Instead, he explained, preserving all of the Bush tax cuts would spur tremendous economic growth that would quickly fill the deficit gap. “What happens when the economy grows, is the federal government actually gets more tax revenue.”
So how is it possible to tell which CBO numbers to trust? I asked Price, pointing out the discrepancy. “The CBO is constrained by rules, in some instances,” he explained. “Sometimes the rules allow them to have more accurate information, in others they don’t.” When it comes to analyzing tax revenue, the CBO must follow the guidance of the 1974 Budget Act, which Republicans like Price believe is flawed. Instead, they’ve long advocated for what’s known as “dynamic scoring” to account for the revenue impact of the economic growth they believe that tax cuts will accelerate.
Why, then, were the 1974 rules for scoring taxes imposed in the first place? Were people just misinformed? Price shrugged, pointing out that Republicans on the Budget committee have tried to change the rules 10 separate times.
In fact, the Bush administration tried using the GOP’s preferred dynamic scoring method to look at the very same Bush tax cuts in 2006. But the results disappointed conservatives: There wasn’t the strong correlation between growth and tax cuts they had expected, and there were far lower levels of growth attributed to the tax cuts than Republicans had claimed, particularly when they weren’t offset by other budget cuts. Even Doug Holtz-Eakin, then a GOP-appointed CBO director, didn’t clamor for more dynamic scoring thereafter.
But that hasn’t stopped Republicans from using the logic of dynamic scoring to make the case for tax cuts that aren’t offset by anything else, as they’re proposing once more. It’s a position that everyone from Tom Price to Mitt Romney has embraced, whatever CBO says to the contrary.
By: Suzy Khimm, The Washington Post, August 1, 2012
“An Ill-Conceived Strategy”: Romney Needed A Foreign Policy Vision Before Going Abroad
Travel abroad for a presidential candidate during the height of campaign season is designed to demonstrate foreign policy wherewithal and a chance to sharpen the candidate’s “presidential” voice.
This strategy strikes me as a mistake in general for prospective presidential candidates. Yet, this strategy is especially problematic absent a distinct foreign policy vision. Traveling abroad gets the candidate outside of the intense focus of the domestic media, allows the campaign to control the story for a few days, and allows for fundraising opportunities. But, these visits are no substitute for definitive foreign policy convictions and a concrete plan of action on the world stage. Instead of making isolated comments in particular countries without a unifying theme, presidential campaigns should describe to international leaders and the American (and world) public how they would handle a crisis, develop trade ties, punish violations of international norms or laws, the threshold for foreign conflicts, and under what conditions they would engage in diplomacy (or not). Foreign policy is, after all, one of the few direct avenues of presidential power where they are less likely to witness resistance from Congress or the public. It is also the issue where most of the president’s time is spent, whether they want it that way or not.
Even without the misinterpretations, missteps, gaffes committed by former Gov. Mitt Romney and the Romney campaign staff, the trip abroad was ill-conceived. The Romney campaign needs to focus their attention and hone a consistent foreign policy message before road testing it.
In contrast, in 2008 as a candidate, then Sen. Barack Obama visited Germany with an agenda: demonstrate that the United States would be, during an Obama administration, an active and cooperative partner in world affairs. Although isolated, the candidate had a goal that went beyond simply reaffirming relations. In a speech in Tiergarten Park, he promoted a new orientation of American international life, putatively as distinct from the Bush administration.
The old saw in politics is that there are no votes in foreign policy. But, given conflicts on two foreign soils, hundreds of thousands of troops stationed overseas, questions about moral uses of military technology, international threats from hostile neighbors, battles over copyright piracy, and the constant threat of terrorism, presidential candidates should make foreign policy an important component of their electoral strategy. Here, words need to speak louder than images.
By: Brandon Rottinghaus, Washington Whispers Debate Club, U. S. News and World Report, August 1, 2012
“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
“The Double Reversal”: Why Did Romney Double Down On Anti-Palestinian Comments?
Mitt Romney has mastered the art of an impressive maneuver worthy of an Olympic gymnast: the double reversal. Within two days he has changed positions twice on why Palestinians in the Occupied Territories live in abject poverty.
After initially walking back his comments attributing Israel’s prosperity and its neighbors’ lack thereof to their respective cultures, Romney has decided to double down, posting an item on National Review’s website defending his statement.
It all started on Sunday, when Romney said the following at a fundraiser in Jerusalem:
The GDP per capita for instance in Israel which is about $21,000 and you compare that with the GDP per capita just across the areas managed by the Palestinian Authority which is more like $10,000 per capita, you notice a dramatic, stark difference in economic vitality. And that is also between other countries that are near or next to each other. Chile and Ecuador, Mexico and the United States.… Culture makes all the difference. And as I come here and I look out over this city and consider the accomplishments of the people of this nation, I recognize the power of at least culture and a few other things. One, I recognize the hand of Providence in selecting this place.
Naturally, some Palestinians took exception to the implication that they are culturally deficient or disfavored by God. Speaking to the Associated Press, Saeb Erekat, a senior aide to Palestinian President Mahmoud Abbas, said: “It is a racist statement and this man doesn’t realize that the Palestinian economy cannot reach its potential because there is an Israeli occupation.”
Romney ignored the much more obvious culprits than culture, such as security restrictions, in suppressing Palestinian economic growth. As Ashley Parker wrote in the New York Times:
The Palestinians live under deep trade restrictions put in place by the Israeli government: After the militant group Hamas in 2007 took control of Gaza—home to about 1.7 million Palestinians—the Israelis imposed a near-total blockade on people and goods in Gaza. The blockade has been eased, and now many consumer goods are allowed in. But aid organizations say the restrictions still cripple Gaza’s economy. The West Bank, where 2.5 million Palestinians reside, is also subject to trade restrictions imposed by the Israelis.
The International Monetary Fund has observed the correlation between Israeli restrictions on trade and movement in the West Bank and Gaza and economic growth in the territories.
Even the people Romney was trying to compliment, Jews, might have been unnerved. Shalom Goldman wrote in Religion Dispatches, “It’s not only the Palestinian leadership that should be aghast at his remarks. Essentially, what the GOP’s candidate for president was saying is that ‘Jews are good with money.’… Students of Jewish history, and of Christian-Jewish relations, can’t help but being horrified by the tone-deafness of such language.”
Romney responded to the criticism by doing what he always does: he changed his position and lied about what he had said before. In an interview with Fox News on Tuesday morning Romney said, “I did not speak about the Palestinian culture or the decisions made in their economy.… That is an interesting topic that perhaps can deserve scholarly analysis but I actually didn’t address that. I certainly don’t intend to address that during my campaign.”
But by Tuesday night Romney had changed his mind again, deciding that the effect of culture on economic outcomes is, in fact, central to his campaign. At 8 pm National Review posted a commentary by Romney:
What exactly accounts for prosperity if not culture? In the case of the United States, it is a particular kind of culture that has made us the greatest economic power in the history of the earth. Many significant features come to mind: our work ethic, our appreciation for education, our willingness to take risks, our commitment to honor and oath, our family orientation, our devotion to a purpose greater than ourselves, our patriotism. But one feature of our culture that propels the American economy stands out above all others: freedom.…
Israel is also a telling example. Like the United States, the state of Israel has a culture that is based upon individual freedom and the rule of law. It is a democracy that has embraced liberty, both political and economic. This embrace has created conditions that have enabled innovators and entrepreneurs to make the desert bloom.
Romney redefines cultures to include precisely the external factors—democracy, the rule of law, economic freedom—that liberals would agree are sources of prosperity. So now the Palestinians’ lack of economic freedom, at the hands of the Israeli occupation, is categorized by Romney as somehow a failing of Palestinian culture.
There are countries under no foreign occupation that also lack democracy, the rule of law and economic freedom, and their economies suffer accordingly. But to describe that as a national cultural characteristic—sort of the inverse of American work ethic—is absurd. North Koreans aren’t poor because their culture abhors economic freedom, while South Korean culture celebrates it. They are poor because they live in a totalitarian state that restricts it.
It is hilarious to see Romney pretend that Israel is some Republican paradise of free market policies. While in Israel Romney praised Israel’s healthcare system for being innovative and far more cost-effective than America’s. Israeli healthcare is, of course, completely socialized.
Romney’s intellectual dishonesty aside, it is curious that he even chose to do this at all. Why would he want to extend the life what is widely considered a gaffe? I’ve come up with three possibilities.
§ He wants to show strength. Romney has a well-earned reputation for flip-flopping and lacking core convictions. The current issue of Newsweek features a cover story by Michael Tomasky arguing that Romney is a wimp. Perhaps Romney wanted to show that he is capable of confronting critics and defending his turf for once. The only problem with this theory is that he would have been much wiser to do so on an issue where he had not already backed down.
§ He really believes this. It’s hard to fathom, since Romney seems to believe so little. But it’s the answer I got from every political professional I asked. Perhaps Romney does not lack a political spine but simply has his in an unusual place. Romney clearly lacks convictions on social issues, foreign policy and regulatory questions, so he makes the most politically expedient pander. But he does show conviction on certain vague economic principles. For example, he will not back down from saying that corporations are composed of people and they are not some evil abstraction. Perhaps the idea that economic benefits accrue to societies that are blessed with cultural virtue, rather than advantageous circumstances, is a similarly deeply held belief for Romney. It would make a clear corollary to his view that his own vast wealth is attributable to personal virtue rather than luck or greed.
§ Conservatives really believe this, and so Romney is trying to excite them. Typically, Romney reverses himself under pressure from conservative pundits. In this case, while conservatives were defending Romney’s original statement, there had not been a right-wing backlash against him for going wobbly on it. But perhaps Romney realized that standing on this principle would energize his base. “This is something that conservatives actually believe,” wrote Soren Dayton, a Republican political strategist, in an e-mail. “And, in many ways, it is clear that Arabs do too, reading the UN’s 2002 Arab Human Development Report, in which Arab scholars ask the same question that Romney did. To run away under pressure from Saeb Erekat and the political correctness police would be intellectually bankrupt and counter to a decade of debate within the Arab world itself.” (You can find a summary of the report Dayton references here.)
As the late, great Senator Daniel Patrick Moynihan (D-NY) observed, “The central conservative truth is that it is culture, not politics, that determines the success of a society. The central liberal truth is that politics can change a culture and save it from itself.”
By: Ben Adler, The Nation, August 1, 2012
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