Mitt, taxes, and the middle class

In my advertising market here in the upstate of South Carolina, there’s probably been one pro-Obama ad that I’ve seen more than any other. The so-called “Stretch” ad is the one where the narrator claims that Mitt Romney’s tax plan will cut tax rates on the wealthiest citizens while raising taxes on middle-class families by $2,000 per year.


This didn’t sound right. I mean, not only is such a plan ideologically counter-intuitive for Romney, it is patently stupid. Seriously, folks, no matter how big the silver spoon wedged into Mitt’s mouth, he’s not dumb enough to raise taxes on middle-class families. But I’ve heard this argument mounted several times now by Obama apologists on various news programs, so I did something I rarely do – I looked up the citation provided in the campaign commercial to see what, exactly, is being referred to.

Turns out the president is using an August 1, 2012 article from the Wall Street Journal’s Washington Wire blog, which itself is reporting on the release of a new study from the Tax Policy Center (TPC). While the organization claims to be nonpartisan, according to the above mentioned WSJ article, one of the study’s authors was formerly employed by the Obama administration. Also, the TPC itself is a joint venture between two center-left organizations, the Brookings Institution and the Urban Institute. These organizations often have smart and interesting things to say, but anyone remotely familiar with their research and policy papers would hardly call them ‘nonpartisan.’

So what did the study actually say?

“Our major conclusion is that any revenue-neutral individual income tax change that incorporates the features Governor Romney has proposed would provide large tax cuts to high-income households, and increase the tax burdens on middle- and/or lower-income taxpayers.” 

In other words, the authors reason that if the government collected the same amount of revenue using Romney’s scheme, it would have to necessarily eliminate many tax breaks, and those breaks’ benefits accrue largely to the middle and lower classes, or so claims the authors.

Now there are a lot of assumptions buried in the quotation above, assumptions that don’t make it into the pundits’ TV arguments, let alone a political ad.

The biggest assumption that the authors make is that “revenue-neutral” means “budget-neutral,” but there is always the spending column of the ledger, something the statement above doesn’t contend with. On the one hand, one can understand the authors’ point of view – federal spending has increased every year since 1954. What would make anyone think that will change in the years ahead? And yet the only way the Romney plan squares the federal ledger without adding to the deficit would be via spending cuts…probably not a likely scenario without a much larger dose of political courage on the part of legislators.

But making the leap from that point to the elimination of middle-class tax breaks is just silly. Outside of the scope of a comprehensive tax reform law, no politician – right or left – is stupid enough to touch tax breaks like charitable deductions, mortgage interest deductions, etc., that the middle class tend to favor. The more likely outcome for the Romney plan, at least as it exists on paper, is that it blows a bigger hole in the budget requiring yet more borrowing by the federal government. If President Obama wanted a more truthful campaign ad, he probably should have said that Mr. Romney seeks to borrow more money from the Chinese in order to fund tax breaks for the rich.

At this point, many conservatives might retort that the authors of the study also fail to factor in the stimulating effects of the tax cuts on the economy. Conservatives might say that Year One under the Romney plan could be budget-negative, but Years Two and Three would close that hole as tax revenues rise.

I have commented in this space many times over my opinion concerning such supply-side theories of taxation. Let’s just say I view supply-side economics the same way an agnostic views God. Furthermore, I can’t lend support to any budget projection that depends on supply-side theory. Rather than have the unicorn of supply-side theory lead us out of the Kingdom of Debt, I’d prefer to simply cut spending, or at the very least, do away with the automatic year-over-year budget increases that occur without any specific congressional authorization.

When considered in this light, I must say that I don’t feel all that great about the Romney plan, but the Obama campaign’s ad – and the study it’s based on – is disingenuous about the so-called tax burdens it places on the middle and lower classes, and if you’re predisposed to distrust the Democratic Party’s zeal to reduce federal spending, as I am, even Romney’s unicorn is preferable to another four years of New Dealism.