Remember how the tax wonks at the Tax Policy Center wrote a paper that said, "Hey! Mitt Romney! Your tax plan is great and all but it's mathematically impossible for you do everything you say you want to do and could result in a tax increase on the middle class," and the Wall Street Journal editorial page took exception with that and said, "Apparently you liberal Obama stooges don't know much about math because we can make it work just fine without a tax increase on the middle class" to which the TPC responded, "Oh, yeah? Well, you guys are throwing in some pretty convenient assumptions to make the planets align for this thing, so we'll stick to our story thankyouverymuch" and everyone that reads about tax policy just sorta sat back and stared at this like the arm-flailing nerd fight that it is? Right! Well, they aren't done!
Romney economic adviser Martin Feldstein wrote an op-ed in the Journal earlier this week that said basically said, "Yes. We. Can….Raise revenue with Mitt Romney's tax plan!" He made a pretty strong case, showing how cutting tax rates while eliminating deductions:
The IRS data show that taxpayers with adjusted gross incomes over $100,000 (the top 21% of all taxpayers) made itemized deductions totaling $636 billion in 2009. Those high-income taxpayers paid marginal tax rates of 25% to 35%, with most $200,000-plus earners paying marginal rates of 33% or 35%.And what do we get when we apply a 30% marginal tax rate to the $636 billion in itemized deductions? Extra revenue of $191 billion—more than enough to offset the revenue losses from the individual income tax cuts proposed by Gov. Romney.This does not mean eliminating all deductions. My preference would be to retain all deductions but to limit their total tax benefit to a moderate percentage of each taxpayer's adjusted gross income.
Additional revenue could be raised from high-income taxpayers by limiting the use of the "preferences" identified for the Alternative Minimum Tax (such as excess oil depletion allowances) or the broader list of all official individual "tax expenditures" (such as tax credits for energy efficiency improvements in homes), among other credits and exclusions.
And estate taxes:
Eliminating it would cost $21 billion of revenue in 2009 terms, an amount easily offset by other base-broadening changes. More importantly, eliminating the estate tax could be a revenue gainer in the longer term. That's because its current high rates induce high-wealth individuals to bequeath most of their money to foundations, universities and other tax-exempt institutions where the future investment earnings are untaxed. If the estate tax were abolished, more of those funds would go to children and grandchildren, who in turn would generate higher income taxes for generations.
Would boil down to:
[B]roadening the tax base would produce enough revenue to pay for cutting everyone's tax rates, it is clear that the proposed Romney cuts wouldn't require any middle-class tax increase, nor would they produce a net windfall for high-income taxpayers. The Tax Policy Center and others are wrong to claim otherwise.
Okay, small problem though, Marty – the TPC is now saying that you proved their point:
Although Feldstein uses a different methodology than we did, his analysis reinforces our central finding about the distributional impact of Romney’s tax proposals: the net effect would be cutting taxes on households above $200,000 and thus requiring net tax increases on households with less income. More broadly, both our analysis and Feldstein’s show that Romney’s tax plan cannot accomplish all of his stated goals. Either taxes must rise on those with income below $200,000, or tax preferences for saving and investment will have to be reduced, or revenues will be cut, or promised tax cuts for high-income households will have to be reduced. Trade-offs exist and solutions are possible, but tax reform cannot do everything that it is sometimes asked to do.
Head spinning? Basically the TPC is saying that Feldstein, like the WSJ editorial board, is making optimistic assumptions and that, in classic Romney campaign fashion, is short on details. We await the Journal's inevitable, self-rigtheous response.
Sigh. Can't we just agree that tax reform is really difficult?