Republican presidential candidate Mitt Romney insists that his plan to cut tax rates by 20% across the board wouldn’t increase the federal deficit because he’d eliminate some of the loopholes used by the wealthy. Those changes, combined with faster economic growth, would keep government revenue rising at its current rate, Romney argues.
Whether that’s actually possible is a subject of intense debate among economists, who’ve been left to guess which tax breaks Romney would seek to end for whom. Unfortunately, when Romney was asked in a television interview Sunday to explain how his plan would work, he responded with the same vague outline that he’s offered in the past. Details matter in tax policy, and if Romney is going to make his economic plan the centerpiece of his election bid, he should stop punting on the specifics.
Lawmakers from both parties have called for simplifying the tax code by ending some exemptions and deductions, and President Obama has said he’d like to do that eventually. In the near term, though, there’s a crucial difference between what the candidates want to do on taxes: Obama wants to raise revenue, and Romney doesn’t. In particular, Obama has called for couples earning more than $250,000 to pay the same income tax rates that they paid before President George W. Bush’s cuts in 2001 and 2003. Romney wants to slice rates 20% lower than Bush did, without reducing the amount the government would collect.
Voters know exactly what would happen to their tax bill next year under Obama’s proposal — and economists on the left and right can have a vigorous debate about its effect on the economy — because all the necessary details are on the table. The same can’t be said of Romney’s plan. Although he’s been clear about his goals, Romney hasn’t shown even by way of illustration how they could all be achieved. Instead, he would leave it to lawmakers to translate those goals into legislation.
Even with the blanks left unfilled, some economists argue that Romney’s plan couldn’t do what he claims. A 20% cut in rates reduces revenue so much, they contend, that it would be impossible to cover the shortfall just by eliminating tax breaks for the wealthy. Granted, Romney appears to be intimately familiar with the loopholes and exemptions available to that group; he paid taxes at a lower rate last year than millions of middle-class families did. But even so, he needs to show that his numbers add up and that he could eliminate breaks without undermining the tax cuts’ ability to boost the economy. Romney’s pledge not to reduce the tax burden on high incomes would seem to conflict with his goal of promoting growth by inducing entrepreneurs and small businesses to hire and spend more.
Some conservative scholars argue that if you start with a different set of assumptions, you can cut rates without reducing revenue. But economists on both sides are just guessing, which is the best anyone can do unless and until Romney makes a more detailed case for his plan.