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A fierce tax debate, without much light

at 06:00 AM ET, 06/19/2012

"Now, an independent study says that about 70 percent of this new, $5 trillion tax cut would go to folks making over $200,000 a year.  And folks making over a million dollars a year would get an average tax cut of about 25 percent.”

— President Obama, June 14, 2012, speaking about Romney tax plan

 “One of the absolute requirements of any tax reform that I have in mind is that people who are at the high end, whether you call them the 1 percent or 2 percent or half a percent, that people at the high end will still pay the same share of the tax burden they’re paying now. I’m not looking for a tax cut for the very wealthiest. I’m looking to bring tax rates down for everyone.”

— Former governor Mitt Romney, on CBS’s “Face the Nation,” June 17, 2012, also speaking about his tax plan

How are such opposing statements even possible?

 The president declares on Thursday that his GOP rival will give the rich a 25 percent tax cut, citing an “independent study.”And then three days later, Romney insists that the rich will still “pay the same share of the tax burden.” In other words, no real tax cut.

 Part of the explanation is that Obama is trying to nail Romney with specifics — and Romney is trying to avoid them. Let’s take a closer look.

The Facts

 First, let’s examine the tax burden under current law. When it comes to federal income taxes, the wealthy already pay most of the taxes. (The percentages change a bit when payroll taxes are included, but not much.) People at the lowest levels have a negative share because they get refundable tax credits. Here are the figures from the nonpartisan Tax Policy Center: 

Share of individual income tax burden

Less than $10,000      -0.9 percent

$10,000-$20,000       -2.1 percent

$20,000-$30,000       -1.3 percent

$30,000-$40,000        0.5 percent

$40,000-$50,000        1.8 percent

$50,000-$75,000        6.6 percent

$75,000-$100,000      8.3 percent

$100,000-$200,000   27.3 percent

$200,000-$500,000     24.7 percent

$500,0000-$1 million 10.4 percent

more than $1 million   24.8 percent

 The first thing that is apparent is that people who earn more than $200,000 already pay 60 percent of federal income taxes. So for Obama to say “about 70 percent” of the tax cut would go to people making more than $200,000 is actually pretty unremarkable. Indeed, he is rounding up because the study in question shows the figure is 67 percent.

 It is a fairly simple proposition: The rich pay most of the income taxes, so in any across-the-board tax cut they get most of the tax cuts.

 Note also the title of the study: “Romney Tax Plan Without Unspecified Base Broadeners.” In other words, it is just part of Romney’s tax cut because he has not specified what tax breaks he would eliminate or trim in order to meet the goals he outlined on his Web site.

Here’s how Romney put it: “Higher-income Americans in particular will see limits placed on deductions, exemptions, and credits that are currently available.  The result will be a pro-growth tax code that still raises the necessary revenue, retains the existing progressivity, and ensures that middle-income Americans see real tax relief.”

 Obama, in his speech, conceded that Romney has not laid out the details. But he argues the math does not add up without hurting the middle class:

 “The only tax breaks and deductions that get you anywhere close to $5 trillion are those that help middle-class families afford health care and college and retirement and homeownership.  Without those tax benefits, tens of millions of middle-class families will end up paying higher taxes.”

 CBS’s Bob Schieffer on Sunday tried to nail down some of those details. Here’s how Romney responded:

 “Simpson-Bowles went through a process of saying how they would be able to reach a setting where they had, actually, under their proposal, even more revenue for the government with lower rates. So mathematically, it’s been proved to be possible. We can have lower rates, as I propose, that creates more growth, and we can limit deductions and exemptions.”

 Simpson-Bowles refers to the deficit commission appointed by Obama, which came up with a tax reform plan that sought to raise $1.2 trillion in additional revenue via tax reform. (The commission also assumed the expiration of George W. Bush-era upper income tax cuts, but Romney opposes that.)

But here’s the rub. When the Tax Policy Center examined the impact of the Simpson-Bowles proposals on tax payers, it found (assuming the Bush tax cuts continued, as Romney wants) that the share of the tax burden of the top 20 percent of taxpayers would actually increase. (Most other taxpayers would see a decrease.)

In other words, this would be the exact opposite of the effect described by Obama. But the Romney campaign is not touting it.

 Eric Fehrnstrom, a Romney senior adviser, said Romney “has embraced the Simpson-Bowles approach of putting all of our tax expenditures on the table and determining which ones it makes the most sense to eliminate” but “where he departs from Simpson-Bowles is in support for a tax increase… he believes our problem is not that taxes are too low, but that spending is too high.”

 Conveniently, such a position means Romney can dance around the practical implications of the Bowles-Simpson’s proposals. He’s apparently for raising more revenue, but not for raising taxes. Romney has also not outlined many specific spending cuts.

 Joseph Rosenberg, research associate at the Tax Policy Center, said it would be possible to reduce the burden on the wealthy so that their share of federal taxes remained constant. “That would mean either that a) the plan would generate less revenue; b) would shift tax burden from those high income households onto the rest of the population; or c) some combination of a) & b),” he said.

The Pinocchio Test

 Both campaigns are playing games here. Obama has embraced a worst-case scenario for Romney’s tax overhaul, on the grounds that Romney has not specified the details. Romney, for his part, makes tax promises without explaining how his numbers could possibly add up.

The voters are left in the dark.

 We normally do not do joint Pinocchio assessments. On balance, we would say Romney gets more Pinocchios — at least two — in this debate because his lack of specificity obscures the choices he would face as president. Obama, in his speech, makes clear he was trying to fill in the specifics, but his focus on 70 percent of the tax cuts going to people making above $200,000 is misleading and worthy of at least one Pinocchio.

 Two Pinocchios




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    About the Blogger

    Glenn Kessler has covered foreign policy, economic policy, the White House, Congress, politics, airline safety and Wall Street.

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