The Romney-Ryan Tax Loophole Fantasy

The math in Mitt Romney's budget simply doesn't work, which is why he continually refuses to lay out the details of his plan.

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One point I mentioned during the live blog of the debate last night which I think is worth reiterating (over and over again) regarding Mitt Romney and Paul Ryan's refusal to give details on half of their tax plan—don't be fooled by their refusal to fill out the details of their plan.

To recap: Romney has proposed a 20 percent across the board income tax cut, to cut corporate taxes, and repeal the Alternative Minimum Tax, among other things. He claims that he will make up the lost tax revenue by closing unspecified loopholes in the tax code. This is where the $5 trillion dispute comes from about Romney's tax plan—his tax cuts are projected to cost around $5 trillion. He argues that it's not fair to characterize his proposal as a $5 trillion tax cut because—you'll have to take his word on this—he's going to offset it by closing loopholes.

[See a collection of political cartoons on the 2012 campaign.]

Why won't he or Ryan name the loopholes they'd be willing to close in order to pay for their massive tax cut? Because in a giant act of bipartisan magnanimousness they are want to work with Congress to decide which loopholes to close. There are two things going on here.

One is that this is the political equivalent of Romney and Ryan doling out heaps of candy to the public but then saying they'll work with the Congress to determine precisely which teeth will have to be drilled to deal with the resulting cavities. They're willing to give out very specific goodies, in other words, and then pretend they're being brave bipartisans by letting Congress work out the painful details of paying for them. That's neither brave nor bipartisan.

As TNR's Noam Scheiber noted last night on Twitter:

Why would you be specific about lowering rates 20 percent but not offsets. Wouldn't the first part make bipartisan compromise harder too?

[See a collection of political cartoons on Mitt Romney.]

If they're so intent on working with Congress, why put a specific number on one side of the tax reform equation but not the other? Why not say the goal is to lower rates by however much eliminating deductions allows but that they'll leave the details up to Congress? The reason goes back to the origin of Romney's tax plan in February when he was trying to win the Republican nomination. Attempting to seem bold and Reaganesque, he proposed the 20 percent across-the-board tax cut. His emphasis then was on rate cuts, including for the rich. He wanted the big bold number. Now he has to backfill the details, which bring me to the other thing going on here.

Romney's math doesn't work. Tax loopholes have become the modern equivalent of wasteful spending--a generic and vastly overestimated pool of money politicians can cite as offsets for their expensive policies. The Congress's nonpartisan Joint Committee on Taxation found that if you repealed all itemized deductions from the tax code (as in goodbye mortgage interest deduction), it would only pay for a 4 percent cut in tax rates.

And more specifically to Romney's plan, the nonpartisan Tax Policy Center (whose findings the Romney campaign used to tout), has run the numbers and figured out that the wealthy don't currently get enough breaks in the tax code to pay for the Romney tax cuts. In order to pay for the cuts middle class taxpayers would have to lose expenditures—more than offsetting the tax breaks they would see.

[Read the U.S. News Debate: Who Won the Vice Presidential Debate Between Biden and Ryan?]

And while Romney and Ryan have talked about a half-dozen independent "studies" which defend his tax plan, they are actually not studies at all—rather they're three blog posts, an op-ed, and a couple of white papers, one of which was written by Romney's own economic advisers. Oh, and they don't actually back up his plan, according to The Atlantic's Matthew O'Brien.

So understand that while Romney's goal sounds good, it's straight out of campaign fantasy land.

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