The Bowles-Simpson and Romney Tax Plans Have Almost Nothing in Common

By :: August 9th, 2012

In the recent contretemps over Mitt Romney’s tax plan, some Romney partisans have asserted that the Massachusetts governor’s revenue plank mimics the tax elements of the deficit reduction plan proposed in 2010 by Erskine Bowles and Alan Simpson, the chairs of President Obama’s deficit fiscal commission.

This claim is absurd. These two proposals could hardly be more different. 

True, both propose a significant across-the-board rate cut on ordinary income. But after that, their tax plans have about as much in common as Infected Mushroom and the New York Philharmonic. True, they both play music, but after that….

The Bowles-Simpson tax reform was fundamentally a trillion-dollar tax increase designed to help cut the deficit, while Romney flatly opposes any deficit-reducing tax hike. Bowles and Simpson would have raised taxes on capital gains and dividends, Romney would cut them. Bowles and Simpson included very specific proposals for eliminating popular tax preferences. Romney is largely silent on how he’d broaden the tax base to pay for his rate cuts.

But none of those inconvenient facts slow those who would caricature Bowles-Simpson to make a political point. Here, for instance, is the Wall Street Journal’s editorial page on the matter: 

“The Romney plan of cutting the top tax rate to 28% and closing loopholes to pay for it is conceptually very close to what Simpson-Bowles recommended….If Mr. Romney's numbers don't add up, then neither do those in the bipartisan Simpson-Bowles plan that the media treat as the Holy Grail of deficit reduction.”

To see how wrong this is, let’s look in a bit more detail at what the two plans would really do:

The goal: Bowles and Simpson wanted to increase taxes on everyone—by about $1 trillion over 10 years. Cutting the deficit was their primary goal and, to them, it required a mix of both spending cuts and tax increases. Romney’s aim could not be more different.  He’d slash the deficit entirely through largely-unspecified spending reductions and not raise taxes at all. Indeed, he’d start by making the 2001-2003 tax cut permanent, then follow up with a tax reform that generates the same amount of revenue as today’s tax rules.  

Tax Rates: Here there is some similarity, at least at first glance. Romney would keep six brackets but cut all rates by 20 percent across the board. He’d repeal the Alternative Minimum Tax and the estate tax.  Bowles and Simpson proposed three reform options, but the version they thought most likely would have three brackets of 12 percent, 22 percent, and 28 percent. They’d repeal the AMT but would retain the estate tax.   

Capital gains and dividends.  Bowles and Simpson would tax gains and dividends at the same rate as ordinary income. Romney would make all gains and dividends tax-free for those making $200,000 or less, and set a rate of just 15 percent for everyone else.  The Journal thinks these are conceptually very close? And I thought the Journal’s editorial page had no sense of humor.

Base-broadeners. Romney has refused to disclose what tax preferences he’d reduce or eliminate. Top aides hint at an across-the-board reduction in the value of tax breaks for some high-income households, but don’t explain how that would work. By contrast, Bowles and Simpson explicitly described how they’d distribute the pain. They’d eliminate, cap, or restructure almost every tax preference—including the mortgage interest deduction, the exclusion for employer-sponsored health insurance, and the deduction for charitable gifts. In their 28 percent option, they described exactly how: They’d retain low-income credits, turn the mortgage and charitable deductions into credits etc. This candor was likely a major reason why their plan died.

Feel free to love Romney’s tax plan or hate it. But beware of politicians and their friends who pretend it and Bowles-Simpson are the same thing. They are not.

15Comments

  1. Michael Bindner  ::  5:06 pm on August 9th, 2012:

    What he says before and after the convention are likely two different things. I suspect he will shake the old etch-a-sketch on tax policy once a possible Ron Paul coup as been dealt with. I think even he knows his Capital Gains tax cut zero out will never fly – in which case his approach still has some similarity. What matters, in the unlikely event he is elected, is who staffs his tax policy office – or even who is advising his campaign (do we know?). Picking Paul Ryan as a running mate would certainly be a clue – but until he does, we really don’t know. That is the main problem with Mitt – not any specific proposal. After the GOP convention, there could be a lurch to the center. THAT plan is the one to analyze. I still also like the idea of having TPC suggest corrections that meet his goals, rather than simply chastising him for having an incomplete plan – as he certainly does not have the analytic resources to match what the White House can do – given their access to data.

  2. AMTbuff  ::  9:15 pm on August 9th, 2012:

    Everyone who’s paying attention realizes that tax reform is a Bait and Switch. Tax breaks will be eliminated in exchange for lower rates, then a couple years later tax rates will be jacked back up for increased revenue. This charade has been played before, from 1986 to 1993.

    The beloved-by-progressives 1993 Clinton tax rates were a breach of faith with taxpayers who had lost their tax breaks in 1986 in exchange for the 28% top rate. Next time taxpayers will lose tax breaks and get hit with a 45% rate a few years later. Count on it.

    I happen to believe that this outcome will be reasonable if it’s accompanied by gap-eliminating reforms in entitlements. However I abhor the dishonest presentation. The trade is not reduced tax breaks for lower rates. The trade is reduced tax breaks for higher revenue than could be obtained regardless of rate with those tax breaks intact.

    Romney knows this. He and other Republicans, including Simpson, are attempting to deceive their voters by pretending otherwise. In a contest between one candidate who levels with the public and the other who plays these old tricks and otherwise acts like Alfred E. Newman, I’ll pick the honest candidate, progressive or conservative. We need an adult in charge. Ideology is less important than maturity and willingness to act responsibly.

  3. Tax Roundup, 8/10/12: « Roth & Company, P.C  ::  9:14 am on August 10th, 2012:

    […] Howard Gleckman, The Bowles-Simpson and Romney Tax Plans Have Almost Nothing in Common (TaxVox) […]

  4. Vivian Darkbloom  ::  9:40 am on August 10th, 2012:

    Gleckman ‘s description of the Bowles-Simpson “Plan” is not accurate. In fact, there was no “Plan”. It was a report that contained a series of recommendations and illustrative options. To suggest otherwise is a profound misrepresentation. Gleckman omits the primary recommendation of that report and therefore avoids a more direct comparison with the Romney proposal.

    As Gleckman alludes to, the Bowles-Simpson report suggests three different possibilities (all illustrative). But the report clearly recommended eliminating *all* tax expenditures in its main tax recommendation 2.1 and reducing the highest marginal tax rate to 23 percent (not 28 pecent per Romney’s sketch).

    Gleckman’s characterization of “have almost nothing in common” is therefore patently false. When you advocate eliminating all tax expenditures, there is no need to specify which ones. Were it not for the fact that the Bowles-Simpson Report presented other alternative scenarios (apparently not their preferred ones) there would be no need to specify individual tax expenditures for elimination. On the other hand, who needs to specify which ones when the TPC will do that for you?

    The Bowles- Simpson Report then goes on to describe an “illustrative plan” the distributional effects of which were scored by the Tax Policy Center. Presumably, the TPC scored the other alternatives as well, including the basic plan under which all tax expenditures would be eliminated and the top marginal rate was 23 percent and came to the conclusion that all alternatives had similar results. There are a few possible differences between the Bowles-Simpson plan’s basic premise (again, see Recommendation 2.1) and the Romney plan:

    1) The top rate under B-S is 23 percent and the top rate under Romney is 28 percent;

    2) Dividends and capital gains are taxed at ordinary rates (23 % max) under the B-S plan and at current rates (15 percent) under the Romney plan with relief for lower and middle-income taxpayers;

    3) The Romney plan eliminates the estate tax while the B-S plan retains the 2009 rates;

    4) The B-S plan reduces the tax brackets to three (while not specifying where the breaks occur); the Romney plan reduces current rates by 20 percent across the board.

    These differences should largely offset each other. And yet, Gleckman concludes that these plans “have almost nothing in common” largely because Gleckman has chosen the illustrative plan that best serves his rhetorical purpose. Surely, Howard is joking?

    Presumably, the reason the TPC is making the comparison it does make is because it chose the one of several “illustrative plans” under the B-S for which detailed distributional data is provided (again, by the TPC). That “illustrative” plan has a top marginal rate of 28 percent (like Romney) however, that illustrative plan adds back a number of very large tax expenditures, such as a revised mortgage interest deduction, charitable deduction, health savings deduction and deductions for retirement accounts as well as the EITC.

    On its face, there appears to be no possible way that these two plans, both scored by the TPC, should have such dramatically different outcomes when the only other differences are 2) , 3) and 4) above as outlined for the B-S “basic plan”.

    Again, these differences are somewhat offsetting in effect. And yet, the TPC has excoriated the Romney plan and scored the plan dramatically differently than it did the B-S plan.

    Why the large differences? If the TPC is going to compare two plans, the baseline and other assumptions should be the same for each. It is very un-useful to use one baseline for just one of the B-S “plans” and another for the Romney plan, come up with vastly different results, and then conclude that one is feasible and the other is not, and that these plans “have almost nothing in common”.

    I suspect that the TPC did not include the Obama tax increases on the “rich” under the ACA when scoring the B-S plan. Also, the B-S Report refers to a “plausible baseline “. The TPC then used its own “modified current policy” baseline for the Romney plan which importantly appears to incorporate the ACA tax increases.

    The TPC’s latest report on the Romney plan also incorporates some very questionable assumptions, including, but not limited to:

    –The assumption that, contrary to current law and current policy, there would be a “step-up” in the basis of assets to heirs even if the estate tax would be eliminated;

    –The rather arbitrary assumptions that certain “tax expenditures” would be retained under the Romney plan as incentives for saving and investment (including the “step-up” referred to above);

    –Assumption, not explained, as to how the estate tax savings (and basis step-up) would be allocated for its distributional analysis;

    –Assumption that the current exemption for state and local municipal bonds would be extended even though most of the benefits do not go to taxpayers.

    They then incorporate ideas from the Ryan plan, mix it into the so-called Romney plan and call the result “the Romney plan”. In fact, it appears to be nothing of the sort, but rather the “TPC imaginary plan”.

    If the TPC is going to compare two “plans”, they should use the most comparable plans (in this case the “base” Bowles Simpson plan that calls for a maximum marginal rate of 23 percent and elimination of all tax expenditures and ordinary (now 23 percent maximum) on CG and dividends). I also suggest that the TPC eliminate some of their more creative assumptions (see above) and provide us with the results. Only then, can we really see if these “plans” have much or “almost nothing” in common. If the WSJ is engaging in hyperbole, Gleckman and the TPC seem to be exaggerating much more in the other direction.

    This is fair criticism, not “vitriol”.

  5. James  ::  10:22 am on August 11th, 2012:

    Many of the conservatives are shoe horning Romney by pushing him to pick Ryan. Looks like it will be a reality anyway.

    Romney has presented an incomplete plan (speech and his 59 point plan) so far he has been silent on the issue of how to pay for it because he has set the Bush tax rates as a “directional marker” and support for the Ryan budget for tax reform. Furthermore he has talked to donors on how he will achieve it but not the public at large so we will not know for sure.
    Many of his advisors are from the GWB administration (Glenn Hubbard,Rob Portman and a few others are among them)who are advocating the same set of policies in the belief that it works despite to the contrary.

    TPC’s job is to score, what the candidates’ plan does and what the effect will be, not make suggestions for correction as they work to get more details but are not provided because the candidate have their own advisors to analyze the policy effect according their assumptions and carry that into office. Romney can afford to provide the analytic resources but you are suggesting that the taxpayer pay for it instead.

  6. AMTbuff  ::  11:53 am on August 13th, 2012:

    Assumption that the current exemption for state and local municipal bonds would be extended even though most of the benefits do not go to taxpayers.

    That point bears repeating. Tax expenditure analysis by TPC and others attributes 100% of the tax savings on munis as benefiting the taxpayer. Economists agree that a large majority of this tax benefit flows through to state and local governments in the form of reduced interest rates on their debt.

    If the TPC ever decides to include repeal of the muni interest exemption in a future hypothetical plan, whether it is headlined inaccurately as Romney’s or not, I hope that the TPC will not count the full tax break as a loss for the rich. In reality the loss to the rich from repeal will be minor.

  7. Michael Bindner  ::  8:51 am on August 14th, 2012:

    TPC is privately funded, so I am not sure where the taxpayer enters into this before the election. After the election, if he wins, the Department of Treasury, OMB and CBO will score all administration proposals.

  8. Romney adviser disparages Simpson-Bowles  ::  1:41 pm on September 25th, 2012:

    […] their primary goal and, to them, it required a mix of both spending cuts and tax increases,” writes the Tax Policy Center’s Howard Gleckman. “Romney’s aim could not be more different. […]

  9. Tatsu  ::  2:05 am on October 24th, 2012:

    Name-dropping Infected Mushroom in this piece makes it, hands down, the coolest tax policy analysis paper I have ever seen. I just thought you should know that.

  10. The Moment of Truth « elcidharth  ::  4:53 pm on November 11th, 2012:

    […] was their primary goal and, to them, it required a mix of both spending cuts and tax increases,” writes the Tax Policy Center’s Howard Gleckman. “Romney’s aim could not be more different.  He’d […]

  11. My Sister Eileen – Bowles-Simpson panel, Myths and Reality  ::  5:17 pm on November 11th, 2012:

    […] was their primary goal and, to them, it required a mix of both spending cuts and tax increases,” writes the Tax Policy Center’s Howard Gleckman. “Romney’s aim could not be more different.  He’d […]

  12. Farah Benevento  ::  12:34 pm on January 12th, 2013:

    alexdombroff@alexanderdombroff.com

  13. artist website  ::  8:35 pm on April 9th, 2013:

    This is very attention-grabbing, You are an overly professional blogger. I’ve joined your feed and sit up for in quest of extra of your great post. Additionally, I’ve shared your website in my social networks

  14. Golda Frazell  ::  5:41 pm on December 14th, 2013:

    Valuable information. Lucky me I discovered your website by chance, and I’m
    stunned why this twist of fate didn’t took place earlier! I bookmarked it.

  15. bigbigdesign.zendesk.com  ::  9:40 am on July 2nd, 2014:

    Hurrah, that’s what I was searching for, what a data! present here at this website, thanks admin of this web
    page.