The Romney Hood fairy tale

[Sheikh_yer_Bu'Tay]

This is a very good read. A version of this article appeared August 8, 2012, on page A14 in the U.S. edition of The Wall Street Journal, with the headline: The Romney Hood Fairy Tale. By Steve Moore.

The Romney Hood fairy tale

As he escalates his class war re-election campaign, President Obama has taken to calling Mitt Romney's economic plan "Robin Hood in reverse" or "Romney Hood." The charge is that even though Mr. Romney is proposing to cut tax rates for everybody across the board, Mr. Romney will finance this by imposing a tax increase on the middle class. His evidence is a single study by the Tax Policy Center, a liberal think tank that has long opposed cutting income tax rates.

The political left always says Daddy Warbucks gets all the tax-cut money. So this is hardly news, except that the media are treating this joint Brookings Institution and Urban Institute analysis as if it's nonpartisan gospel. In fact, it's a highly ideological tract based on false assumptions, incomplete data and dishonest analysis. In other words, it is custom made for the Obama campaign.

By the way, even the Tax Policy Center admits that "we do not score Governor Romney's plan directly as certain components of his plan are not specified in sufficient detail." But no matter, the study plows ahead to analyze features of the Romney plan that aren't even in it.
***

The heart of Mr. Romney's actual proposal is a 20% rate cut for anyone who pays income taxes. This means, for example, that the 10% rate would fall to 8%, the 35% rate would fall to 28% and all the brackets in between would fall as well. The corporate tax would fall to 25% from 35%.

The plan says these cuts would be financed in a revenue-neutral way. First, by "broadening the tax base," which means reducing or eliminating tax deductions and loopholes as in the tax reform of 1986. The Romney campaign doesn't specify which deductions—no campaign ever does—but it has been explicit in saying that the burden would fall most on higher tax brackets. So in return for paying lower rates, the wealthy get fewer deductions.

Second, the Romney campaign says it expects to increase revenues by increasing the rate of economic growth to 4%, up from less than 2% this year and in 2011. (Separately from tax reform, but clearly relevant to budget deficits, Mr. Romney says he'd gradually reduce spending to 20% of the economy from the Obama heights of 24%-25%.)

The class warriors at the Tax Policy Center add all of this up and issue the headline-grabbing opinion that it is "mathematically impossible" to reduce tax rates and close loopholes in a way that raises the same amount of revenue. They do so in part by arbitrarily claiming that Mr. Romney would never eliminate certain loopholes (such as for municipal bond interest), though the candidate has said no such thing.

Based on this invention, they then postulate that Mr. Romney would have to do something he also doesn't propose—which is raise taxes on those earning less than $200,000. In the Obama campaign's political alchemy, this becomes "Romney Hood" and a $2,000 tax increase.

The Tax Policy Center also ignores the history of tax cutting. Every major marginal rate income tax cut of the last 50 years—1964, 1981, 1986 and 2003—was followed by an unexpectedly large increase in tax revenues, a surge in taxes paid by the rich, and a more progressive tax code—i.e., the share of taxes paid by the richest 1% rose.

For example, from 1980 to 2007, three tax rate cuts brought the highest marginal tax rate to 35% from 70%. Congressional Budget Office data show that when the tax rate was 70%, the richest 1% paid 18% of all federal income taxes. With the rate down to 35% in 2008, the share of taxes paid by the rich doubled to 40%.

The Tax Reform Act of 1986, which chopped the top income tax rate to 28% from 50%, was probably most similar to the Romney tax proposal because both were designed to lower rates and broaden the tax base. CBO and Martin Feldstein of the National Bureau of Economic Research found that the 1986 tax reform increased the share of taxes paid by the rich (to about 25% from 21% before the reform), in part because their reported taxable income rose as they lost tax shelters. Many businesses also changed their tax status from corporations to Subchapter S companies, thus paying taxes at the individual rate. This also increased the reported share of income declared, and tax paid, by the rich.

So on four separate occasions what TPC says is "mathematically impossible"—cutting tax rates and making the tax system more progressive—actually happened. Hats off to the scholars at TPC: Their study manages to claim that what happens in real life can't happen in theory.

The TPC analysis also fails to acknowledge how highly dependent the current tax system is on the very rich. As the Tax Foundation explains in a recent report based on CBO data: "The top 20 percent of households pay 94 percent of federal income taxes. The bottom 40 percent have a negative income tax rate, and the middle quintile pays close to zero."

This reality is treated as a state secret in Washington because it refutes Mr. Obama's campaign theme that the rich are undertaxed. The same crowd that has been howling that the rich don't pay their fair share of taxes now touts a study concluding that cutting taxes will only benefit the rich. Well, which is it?
***

Another reality is that more than one-third of Americans pay no income tax. Many in this group contribute payroll taxes, but for most their only connection to the income tax is to receive refundable tax credits (in the form of a check) that are effectively government payments. This is the basis for the Tax Policy Center's wild claim that the Romney plan raises taxes on those who earn less than $30,000—a group that now has a negative tax liability.

The claim is that reducing various refundable tax credits that are cash payments from the government are a "tax increase." By this logic, reducing unemployment benefits or food stamps would also be a tax increase. Even the CBO and Congress's Joint Committee on Taxation acknowledge that refundable tax credits are government outlays not tax cuts.

The study's claims also rest on the assumption that tax cutting doesn't increase economic growth. The study's authors expose their own bias on this point by asserting that "the effects of tax rate reductions are likely to be small or even negative" over 10 years.

It's certainly true that not all tax cuts have the same economic impact. But nearly all economists save for the most partisan liberals agree that cutting tax rates at the margin has the most bang for the buck. So how can the Tax Policy Center claim that cutting tax rates to increase incentives to work and invest has a "negative" impact? Not even the Keynesian economists who gave us the failed stimulus plan argue that the effect of tax cuts is negative.

Harvard economist Dale Jorgenson recently testified before the Senate Finance Committee that "a tax reform similar to the Reagan effort of 1986" would raise economic output over the long term "by $7 trillion in 2011 dollars."

You can argue that Mr. Romney's expectation of 4% GDP growth is too rosy, but the recent White House mid-session budget review predicts 4% growth in both 2014 and 2015 despite a huge tax increase next year. The Romney plan is far more realistic than that wish in the dark.

The Tax Policy Center's claim that it's impossible to make the numbers add up is also refuted by President Obama's own Simpson-Bowles deficit commission report. 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.

And here's the kicker: Simpson-Bowles assumed that the top rate could be cut to 28%, loopholes could be closed, revenues as a share of GDP would rise to 20% and the deficit could be cut by close to $1.5 trillion. The difference is that the Romney plan caps tax revenues at about 18% of GDP so that taxes don't have to rise on the middle class. 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.
***

What the Obama campaign and its acolytes at the Tax Policy Center are really saying is that tax reform that reduces rates and makes all income groups better off is impossible. This is a far cry from what Democrats used to believe, going back to Jack Kennedy in 1964 and in the 1980s when prominent Democrats Bill Bradley, Dick Gephardt and Don Rostenkowski helped to write the 1986 tax reform.

The Obama Democrats, by contrast, favor income redistribution and raising rates on the wealthy for their own partisan political sake, no matter the damage to growth, the cost in lost revenue, or a less progressive tax code as the rich exploit loopholes.

The great irony is that the candidate most likely to raise taxes on the middle class is Mr. Obama. He could raise every tax on the rich he proposes and still not come up with enough revenue to finance the increases in spending he wants in a second term. Where do you think he'll turn then?

A version of this article appeared August 8, 2012, on page A14 in the U.S. edition of The Wall Street Journal, with the headline: The Romney Hood Fairy Tale

[mbailey1234]

Interesting read but there is one line that kind of strikes a nerve with me. When they are always saying "This is the basis for the Tax Policy Center's wild claim that the Romney plan raises taxes on those who earn less than $30,000—a group that now has a negative tax liability.

Fortunately I have increased my income so that I am making more than this now but it wasn't that many years ago that I was in that income range. What about the sales tax, local option sales tax, gas tax, hotel tax, property tax, social security tax, vehicle licences, etc? A tax is a tax in my opinion. Doesn't matter if it's going to the federal, state or local government. The only way out of this mess is to CUT SPENDING. Very rarely do they ever mention this though. I would have to put a sharp pencil to it but I think it would be safe to say that over 40% of the revenue generated by our business is paid back out in some sort of TAX, of which more than half of that amount is simply flushed down the crapper by wasteful spending by our government.

[Bluegill]

Interesting read but there is one line that kind of strikes a nerve with me. When they are always saying "This is the basis for the Tax Policy Center's wild claim that the Romney plan raises taxes on those who earn less than $30,000—a group that now has a negative tax liability.

Fortunately I have increased my income so that I am making more than this now but it wasn't that many years ago that I was in that income range. What about the sales tax, local option sales tax, gas tax, hotel tax, property tax, social security tax, vehicle licences, etc? A tax is a tax in my opinion. Doesn't matter if it's going to the federal, state or local government. The only way out of this mess is to CUT SPENDING. Very rarely do they ever mention this though. I would have to put a sharp pencil to it but I think it would be safe to say that over 40% of the revenue generated by our business is paid back out in some sort of TAX, of which more than half of that amount is simply flushed down the crapper by wasteful spending by our government.

No, I have to disagree. All the taxes you mentioned are "use taxes". Even that Ponzi scheme S.S. has a cap on it. Everybody more or less pays the same. If you don't use certain things, you don't have to pay that tax.

If you decide to not own a car and ride a bike everywhere, you don't pay vehicle license fees or gasoline taxes to maintain the roads you don't use.

Income tax is different. the fact that you had a negative income liability is/was plain wrong and immoral. You still got all the benefits (what ever those may or may not be) but didn't have to contribute to the kitty. While the rest of us did. How is that just?

Those who are in the higher income brackets and pay even higher percentages, do they get more of the aforementioned benefits? How is that just?

I said it before, the only true fair income tax system is where the total annual Federal bill is determined. Then divided by the number of living humans who reside in this country, and the bills get sent out. That is EVERYONES tax liability. It's as fair as it gets. Everyone pays the same bill for the same services.

Now I'm not advocating or defending income tax by any stretch of the imagination. This country ran just fine without it right up to a 100 years ago. It's not a coincidence that the USA of then is unrecognizable from the current USA.

But, the citizenry want their Imperial holy wars and large military, they want cradle to grave nannyism. It is a mathematical impossibility to fund these things from a direct taxation. They HAVE to be funded with deficit spending and borrowing. Along with the stealth tax known as inflation. All in addition to, income tax.

[Sheikh_yer_Bu'Tay]

Interesting read but there is one line that kind of strikes a nerve with me. When they are always saying "This is the basis for the Tax Policy Center's wild claim that the Romney plan raises taxes on those who earn less than $30,000—a group that now has a negative tax liability.

Fortunately I have increased my income so that I am making more than this now but it wasn't that many years ago that I was in that income range. What about the sales tax, local option sales tax, gas tax, hotel tax, property tax, social security tax, vehicle licences, etc? A tax is a tax in my opinion. Doesn't matter if it's going to the federal, state or local government. The only way out of this mess is to CUT SPENDING. Very rarely do they ever mention this though. I would have to put a sharp pencil to it but I think it would be safe to say that over 40% of the revenue generated by our business is paid back out in some sort of TAX, of which more than half of that amount is simply flushed down the crapper by wasteful spending by our government.

The article is talking about Federal income taxes. I agree with you. I think the line you highlighted means you got a refund at years end. How it is a negative event on the balance sheet is all the costs involved in collecting the tax, then refunding it back to you. Stupid idea, IMHO.

I also agree, we have to CUT SPENDING, AND RAISE TAXES to get out of this mess. Otherwise, we are in for one really big "re-set".

[Bluegill]

Interesting read but there is one line that kind of strikes a nerve with me. When they are always saying "This is the basis for the Tax Policy Center's wild claim that the Romney plan raises taxes on those who earn less than $30,000—a group that now has a negative tax liability.

Fortunately I have increased my income so that I am making more than this now but it wasn't that many years ago that I was in that income range. What about the sales tax, local option sales tax, gas tax, hotel tax, property tax, social security tax, vehicle licences, etc? A tax is a tax in my opinion. Doesn't matter if it's going to the federal, state or local government. The only way out of this mess is to CUT SPENDING. Very rarely do they ever mention this though. I would have to put a sharp pencil to it but I think it would be safe to say that over 40% of the revenue generated by our business is paid back out in some sort of TAX, of which more than half of that amount is simply flushed down the crapper by wasteful spending by our government.

The article is talking about Federal income taxes. I agree with you. I think the line you highlighted means you got a refund at years end. How it is a negative event on the balance sheet is all the costs involved in collecting the tax, then refunding it back to you. Stupid idea, IMHO.

I also agree, we have to CUT SPENDING, AND RAISE TAXES to get out of this mess. Otherwise, we are in for one really big "re-set".

How about we just cut spending, and pass on the raising of taxes... If you wanna raise taxes, how about we have the generations who ran up the bill, PAY for the bill...

[Sheikh_yer_Bu'Tay]

I also agree, we have to CUT SPENDING, AND RAISE TAXES to get out of this mess. Otherwise, we are in for one really big "re-set".

How about we just cut spending, and pass on the raising of taxes... If you wanna raise taxes, how about we have the generations who ran up the bill, PAY for the bill...

The only time in my 58 yrs. we ever came close to balancing the budget was when Clinton signed off on the tax increases of his first two years in office. That led to the Repub. revolution during his first mid-term election. The Repubs in Congress would not let Clinton have any money, and Clinton vetoed every pet project the Repubs came up with. It worked very well. We had increased taxes and reduced spending.

Now, after Bush 2 and Obama racking up something like $9 TRILLION combined, things are drastically worse!!! I don't think cutting spending alone will do it. You would have to shut down most of the government (not a bad idea!), and kick most people off their gov. pensions, well-fare, & disability pymnts.

Bluegill, I totally agree with you about the lower income brackets now paying their fair share. Restore the Clinton tax increases and we get closer to tax fairness.

[aloneibreak]

wasteful spending by our government.

and what i consider wasteful spending by our govt is all the handouts to folks who cant "afford" food yet somehow still find money for cable tv, internet, smart phones, stereo systems, cars newer than mine, all sorts of bling etc. etc. etc and yes, even "collectibles"

a use tax or consumption tax is the only answer for making it closer to fair IMO

[Treetop]

I said it before, the only true fair income tax system is where the total annual Federal bill is determined. Then divided by the number of living humans who reside in this country, and the bills get sent out. That is EVERYONES tax liability. It's as fair as it gets. Everyone pays the same bill for the same services.

I think that is a horrible idea. presuming I found the correct numbers here, the countries poor even with full employment would owe more then they make in a given year..

http://www.usdebtclock.org/#

we would need to cut spending greatly to only rely on income streams, but the current taxes collected appear to be around 2.369 trillion

If this site is correct...
http://www.onemint.com/2011/01/19/numbe ... ia-and-us/

current people who "pay" income taxes are 144 million.

that would leave us on the hook for over 16k each, which would leave the nations poor, completely broken. Im not sure how that is fair exactly. a straight percentage for each wage earner seems the ideal to me...

Actually my favorite system is the one where I believe it was a 23% sales tax. everyone rich or poor gets the taxes they would have paid up to the poverty level. I like this because then the IRS would be a tiny fraction of what it is now. we could get rid of most social programs we simply cant pay for anyway. having those at poverty level essentially not paying taxes doesnt bother me to much. and if the numbers actually work out as its claimed we could end all the nonsense about reporting income. I could work for a neighbor for instance with out claiming anything or having it possibly come back at me and several related issues. I think having to report income is terribly in efficient.

having the poor not pay income tax doesnt bother me, but actually giving them refunds over what they paid is simply insane. a flat tax of the same percentage
for all with no loopholes id pretty good, but then we have to keep the IRS as is, and all its issues including making it tricky to have alternative income streams. with a sales tax we also would bring black market incomes into the tax loop. paying out an amount equal to what those at the poverty level would pay in the sales tax is wise to me, let the losers collect together and live off their checks. big deal, much much much more efficient then what we do today, and they could atleast stay fed, and we could get rid of most of the social programs we simply cant sustain forever....

thats my take on it anyway...

[mbailey1234]

Bluegill I looked back and I never received back more than I contributed but in the late 90's I didn't pay much for a couple of years since a business we put a $80K roof on for played their cards correctly and went belly up before they paid us. Tough blow to swallow on your second year of business. We were at a "reduced income" for quite some time after that hit. Never mind the guy lives in a $600k house and drives new vehicles and is probably out on his 40 foot boat this weekend. He was a crook but he did it "legally". Or was he just a smart businessman since he did it legally? I am proud of the fact that we made it through those tough times and dealt with the cards we were dealt. Could have easily filed bankruptcy and passed the bill on to the next guy but we didn't and we survived.

Not trying to argue but rather discuss/debate this since something obviously has to give so what's "fair" and what's not?

As far as the remarks about the car and bicycle, where do you ride your bicycle? Last time I went for a ride I noticed a bunch of vehicle traffic. What about the amish buggies that went by all afternoon today after their church services? Don't think they had licence plates on them and they sure didn't pay any fuel tax on the horse feed, yet they do more damage to our roads than any vehicle around here. Those horse hooves make little holes on our secondary roads and then fill with water when it rains and just get bigger and bigger. Same with farm equipment around here. Hard on the roads and bridges but no revenue generated for road use. They do pay a bunch in property taxes though.

We operate a food concession trailer and set up a couple of times per week in a small town down the road from where we live. I don't pay any property tax on the trailer. The local restaurant's hate it when we pull in. We aren't on the same playing field due to our lower overhead costs. Smart business or am I a crook? Our customers use the city streets to come to our location but the city doesn't get anything except a 1 cent sales tax revenue. Should I feel guilty and donate some money to the city? I would love to open a restaurant but I simply can't make it pencil right now. One of the road blocks is it would cost us around $1,000 per month in property taxes! That comes right off the bottom line.

The current income tax rules are so unmanageable right now that we do need to wipe the slate clean and start over. Not sure what the correct thing would be to replace it but some sort of flat sales tax could be a start.

[Bluegill]

Bluegill I looked back and I never received back more than I contributed but in the late 90's I didn't pay much for a couple of years since a business we put a $80K roof on for played their cards correctly and went belly up before they paid us. Tough blow to swallow on your second year of business. We were at a "reduced income" for quite some time after that hit. Never mind the guy lives in a $600k house and drives new vehicles and is probably out on his 40 foot boat this weekend. He was a crook but he did it "legally". Or was he just a smart businessman since he did it legally? I am proud of the fact that we made it through those tough times and dealt with the cards we were dealt. Could have easily filed bankruptcy and passed the bill on to the next guy but we didn't and we survived.

Not trying to argue but rather discuss/debate this since something obviously has to give so what's "fair" and what's not?

As far as the remarks about the car and bicycle, where do you ride your bicycle? Last time I went for a ride I noticed a bunch of vehicle traffic. What about the amish buggies that went by all afternoon today after their church services? Don't think they had licence plates on them and they sure didn't pay any fuel tax on the horse feed, yet they do more damage to our roads than any vehicle around here. Those horse hooves make little holes on our secondary roads and then fill with water when it rains and just get bigger and bigger. Same with farm equipment around here. Hard on the roads and bridges but no revenue generated for road use. They do pay a bunch in property taxes though.

We operate a food concession trailer and set up a couple of times per week in a small town down the road from where we live. I don't pay any property tax on the trailer. The local restaurant's hate it when we pull in. We aren't on the same playing field due to our lower overhead costs. Smart business or am I a crook? Our customers use the city streets to come to our location but the city doesn't get anything except a 1 cent sales tax revenue. Should I feel guilty and donate some money to the city? I would love to open a restaurant but I simply can't make it pencil right now. One of the road blocks is it would cost us around $1,000 per month in property taxes! That comes right off the bottom line.

The current income tax rules are so unmanageable right now that we do need to wipe the slate clean and start over. Not sure what the correct thing would be to replace it but some sort of flat sales tax could be a start.

Again, your confusing “use taxes” with Federal income tax. These use taxes are mostly at the state, county and local level. Yes, a lot of them are discriminatory, unjust and unfair. But that needs to be addressed at its appropriate level. Not relevant.

Your roof incident is a legal matter, not a taxation matter. I can genuinely emphasize, but it is not relevant.

Bottom line, even if you didn’t receive an EIC, you still did not pay your fair share of Federal income taxes for services that we all equally received.

The current income tax rules are so unmanageable right now that we do need to wipe the slate clean and start over. Not sure what the correct thing would be to replace it but some sort of flat sales tax could be a start.

Why does everyone want to keep paying more taxes? Why does everyone want to try and reform and fine tune an immoral unconstitutional system? Why does everyone want to replace it with a different immoral system? Why is everyone against deep spending cuts?

Before the 16th amendment, we didn't have an income tax. We also were the most prosperous, with the largest middle class of any nation in recorded history. We were the envy of the world for our economic and personal freedom.. Why wouldn't we want to strive for a return to that instead?

[Bluegill]

I said it before, the only true fair income tax system is where the total annual Federal bill is determined. Then divided by the number of living humans who reside in this country, and the bills get sent out. That is EVERYONES tax liability. It's as fair as it gets. Everyone pays the same bill for the same services.

I think that is a horrible idea. presuming I found the correct numbers here, the countries poor even with full employment would owe more then they make in a given year..

http://www.usdebtclock.org/#

we would need to cut spending greatly to only rely on income streams, but the current taxes collected appear to be around 2.369 trillion

If this site is correct...
http://www.onemint.com/2011/01/19/numbe ... ia-and-us/

current people who "pay" income taxes are 144 million.

that would leave us on the hook for over 16k each, which would leave the nations poor, completely broken. Im not sure how that is fair exactly. a straight percentage for each wage earner seems the ideal to me...

Actually my favorite system is the one where I believe it was a 23% sales tax. everyone rich or poor gets the taxes they would have paid up to the poverty level. I like this because then the IRS would be a tiny fraction of what it is now. we could get rid of most social programs we simply cant pay for anyway. having those at poverty level essentially not paying taxes doesnt bother me to much. and if the numbers actually work out as its claimed we could end all the nonsense about reporting income. I could work for a neighbor for instance with out claiming anything or having it possibly come back at me and several related issues. I think having to report income is terribly in efficient.

having the poor not pay income tax doesnt bother me, but actually giving them refunds over what they paid is simply insane. a flat tax of the same percentage
for all with no loopholes id pretty good, but then we have to keep the IRS as is, and all its issues including making it tricky to have alternative income streams. with a sales tax we also would bring black market incomes into the tax loop. paying out an amount equal to what those at the poverty level would pay in the sales tax is wise to me, let the losers collect together and live off their checks. big deal, much much much more efficient then what we do today, and they could atleast stay fed, and we could get rid of most of the social programs we simply cant sustain forever....

thats my take on it anyway...

I'm not sure what exactly you're trying to say.

Let's just agree to disagree, and call it a day.

[Treetop]

Pretty simple, if we did what you said the poorer folks taxes due would be more then they make. clearly that wont work. I then explained the taxing system I prefer.

[Sheikh_yer_Bu'Tay]

Why does everyone want to keep paying more taxes? Why does everyone want to try and reform and fine tune an immoral unconstitutional system? Why does everyone want to replace it with a different immoral system? Why is everyone against deep spending cuts?

Before the 16th amendment, we didn't have an income tax. We also were the most prosperous, with the largest middle class of any nation in recorded history. We were the envy of the world for our economic and personal freedom.. Why wouldn't we want to strive for a return to that instead?

I don't think we will ever be able to return to the economy of the late 1800's. Remember, as a nation, we were pulling gold, silver, copper, coal, timber, and many other natural resources out of the wilderness with very little costs involved. The gold and silver mostly went straight to the mint. We were literally digging our money out of the ground and then coining it hand over fist. We were an exporter of raw materials.

Today, we have an entirely different economy. We are an import nation.

Hey, if you can figure out how to abolish the 16th amendment... I am all for it!