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October 3 2012

Behind the "Middle Class Tax Hike" Canard

Charlotte Hays

Walter Mondale lost the presidential race against Ronald Reagan in part because he said flat-out that he was going to raise taxes.

President Obama has never met a tax hike he didn’t like, but he is a far better politician than the hapless Fritz. Despite having tax policies that look a lot like Mondale’s, Obama is hanging the tax raiser label on, of all people, the Republican, Mitt Romney. The Wall Street Journal comments:

In this peculiar election year, President Obama is pulling off the small miracle—no, make that the kind of thing that happens in Lourdes—of winning the tax debate. This should be impossible, and Mitt Romney has to turn that around if he wants to win.

Specifically, the Obama campaign is making the devastating claim that a President Romney would raise taxes on the middle class in order to give tax cuts to his precious millionaires and billionaires.

Two excellent articles available today debunk this claim and show how its source--a study by the Urban Institute and Brookings’ Tax Policy Center--relied on false premises.

An amateur such as myself looks at the basics of the Romney plan (as outlined in one of the articles) and wonders how anybody can get higher taxes out of the proposals. Here they are:

·  Reduce statutory income tax rates 20 percent, from 10, 15, 25, 28, 33, and 35 percent to 8, 12, 20, 22.4, and 28 percent.

·  Reduce the corporate tax rate from 35 percent to 25 percent. 

·  Repeal the Alternative Minimum Tax for individuals and corporations.

·  Repeal the estate tax.

·  Eliminate, curtail, and reform numerous special provisions in the tax code—the credits, deductions, and exclusions that cause complexity, compliance problems, distortions, and inefficiencies

So where do the tax hikes by "sleeper agent" Mitt Romney come in?

According to the Wall Street Journal, the TPC assumed that Romney's tax plan, cutting taxes across the board but raising revenue by closing loopholes, is simply “mathematically impossible.”

Alex Brill, a research fellow at the American Enterprise Institute, whose work is quoted in the Wall Street Journal article, details in today's second must-read how the TPC assumptions that led to this conclusion are fatally flawed. Since a previous article by Brill forced the TPC to “walk back” its estimates of how much Romney would allegedly raise taxes on the middle class, he's especially worth reading.    

Although Brill's piece is difficult in pathces, he makes an important point that even laymen can grasp: one of the several reasons the TPC study reaches an incorrect conclusion is that it doesn’t factor in economic growth—it uses a zero growth scenario. Brill writes:

The TPC model has an important limitation when it is used to consider the impact of such large reforms as Romney’s plan. It assumes that any tax reform would not help the economy. In this sense, the TPC model is consistent with the models used by the official revenue estimators at the U.S. Treasury Department and the Joint Committee on Taxation. But those models are intended primarily to analyze the impact of modest changes to the tax code, not fundamental tax reform. In fact, there is plentiful economic evidence that tax reform could result in measurable economic growth. Depending on the reform and the model used to analyze it, tax reform can increase the capital stock, encourage work and innovation, and improve the allocation of resources in the economy.

Romney might have had an easier time tonight if he were debating that nice Mr. Mondale. But he isn't and he must nevertheless find a way to make these points against one of the most brilliant politicians in American history.

Independent Women’s Forum’s mission is to improve the lives of Americans by increasing the number of women who value free markets and personal liberty. Sister organization of Independent Women’s Voice.
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