Will Romney Scale Back Rate Cuts If Congress Won’t Curb Tax Breaks?

By :: September 25th, 2012

Yesterday, Kevin Hassett, an American Enterprise Institute economist and informal adviser to Mitt Romney, insisted that Romney would not raise taxes on low- and middle-income households in order to finance his promised 20 percent across-the-board rate cut. Nor would those rate cuts increase the deficit. Instead, Kevin predicted that if Congress did not trim tax preferences, Romney would scale back those rate reductions.

I think he's right.

Kevin made his remarks at a National Assn. for Business Economics debate with Jeff Liebman, an economic adviser to Barack Obama. And by doing so, Hassett tried to rebut the Democratic talking point that the Romney tax plan would inevitably result in higher taxes for the middle-class.

Kevin, however, recast that claim somewhat : “The notion that Romney is going to raise taxes on low-income people is just a lie,” he insisted, “There is no way in hell he’s going to raise taxes on people making $20,000 by $2,000 bucks.”

For the record, I do not know anyone who said he would. 

When asked to describe Romney’s definition of middle-class, Kevin demurred, though Romney himself has said it is “$200,000 to $250,000 and less.”

Still, Kevin added, “If you think the base-broadeners don’t add up, if you think he can’t get to 28 percent, then the right thing that would happen, as you know, if you’re going to have a revenue-neutral reform, is that they would have a different change in rates.”

Romney has thus far refused to describe which tax credits, deductions, or exclusions he’d cut, insisting he’d leave that to Congress.  

The Tax Policy Center has found that a 20 percent across-the-board rate cut along with repeal of the estate tax and the Alternative Minimum Tax would disproportionately benefit high-income households. As a result, it would be effectively impossible for Romney to cut rates as he has promised without raising taxes on middle-income households, increasing the deficit, or raising taxes on investment income (which he has vowed not to do).

Hassett called the TPC analysis “the most partisan thing to come out of a think tank in my lifetime.”

Not surprisingly, I think that assessment is way over-the-top. However, I suspect Kevin is exactly right in his prediction of which of Romney’s incompatible promises would eventually be scrapped. While other Romney advisors hint at different changes, such taxing municipal bond interest or eliminating all tax preferences for those making $100,000 or more, these seem unrealistic at best.  More likely, as Kevin suggests, the rate cuts would be scaled back.      

The Hassett-Liebman event was something of a preview of the upcoming debate between Romney and Obama, though the two economists likely brought more candor, substance, and passion to the topic than their principals will.  

 

20Comments

  1. Jack B  ::  3:47 pm on September 25th, 2012:

    Is it even possible to have tax reform in today’s political climate? How was it done in 1986?
    Romney’s refusal to elaborate on details is totally logical in that it’s political suicide to single out which expenditures are on the block. Hand off the dirty work to congress where it ultimately belongs. My question is, If we are really going to deal with reality, why are we talking about revenue neutrality at all? No one in their right mind believes that reducing our outrageous deficits can be done through spending cuts alone. The problem lies with finding a way to force a profligate congress to not spend any new revenue.

  2. Tax Roundup, 9/26/12: Romney vs. John Edwards; Also: low taxes, if you don’t count some taxes. « Roth & Company, P.C  ::  9:35 am on September 26th, 2012:

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  3. pgl  ::  11:04 am on September 26th, 2012:

    As Brad DeLong noted, this brings the number of specific policy proposals from Team Romney down from one (cut tax rates) down to zero. Si I guess Romney is now running a campaign based on the premise that he looks better in a suit than the other guy?

  4. Advisor Says Romney Would Scrap Mathematically Impossible Tax Plan if It’s Mathematically Impossible | OccuWorld  ::  2:37 pm on September 26th, 2012:

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  5. Quora  ::  6:55 pm on September 26th, 2012:

    Did Romney mean to say that he’s not planning to provide tax cuts to the middle class?…

    I think Romney did mean to say this. In this incredibly wonky piece it seems one of Romney’s paths lie in raising taxes for the middle class, but that wouldn’t necessarily happen. Either way, it doesn’t seem like there’s a plan to lower taxes n the…

  6. AMTbuff  ::  2:00 pm on September 27th, 2012:

    For the record, I do not know anyone who said he would.

    What about the Tax Policy Center itself in its recent paper on its interpretation of the Romney plan?

    The TPC claimed that Romney could not simultaneously:

    A. Cut tax rates 20%,
    B. Maintain revenue neutrality, and
    C. Maintain distributional neutrality,

    If TPC had cared about appearing non-partisan it could have presented the result that Romney can only cut tax rates 18% (or whatever) while maintaining distributional and revenue neutrality. That headline would have been a yawner. Instead, TPC headlined that Romney could not maintain distributional neutrality while cutting tax rates and maintaining revenue levels.

    In other words, who said that the compromise must be on (C) rather than on (A)? Or (B)?

    TPC wanted to make a striking statement and it did. It aligned with one party’s viewpoint right in the middle of a hot campaign. That was a very costly choice for an outfit that had a hard-earned reputation for impartiality.

  7. Romney Reduces His Number of Policy Specifics to Zero | FavStocks  ::  4:13 am on September 28th, 2012:

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  9. Michael Bindner  ::  2:28 pm on September 28th, 2012:

    I suspect that some form of VAT is under private consideration, but Romney will never say this while he needs the votes of his own base. No tax restructuring that makes sense will ever get the support from the likes of Grover Norquist and Dick Armey. Gov. Romney is a smart rat and will likely support whatever makes sense if elected, likely stabbing his base in the heart in doing so. Of course, Obama would likely propose the same changes – there are not too many reasonable options out there. I think he is making a mistake. Going bold by saying he would end filing by most households, ala Michael Graetz, Len Burman, Lawrence B. Lindsey or me would likely attract a great deal of support among voters – but it is too late to make such grand proposals.

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