The $5 trillion question
“President Obama continues to distort Mitt Romney’s economic plan. The latest? Not telling the truth about Mitt Romney’s tax plan.”
— new Mitt Romney campaign ad
“So lowering the rates, as Mitt Romney has said he would do, to 20 percent — $2.7 trillion over 10 years; eliminating the AMT [alternative minimum tax] — $700 billion; repealing high-income payroll tax — $300 billion; ending estate tax — $150 billion; lowering the corporate rate from 35 to 25 [percent] — $1.1 trillion. That adds up to $4.8 trillion. If you factor in interest for additional borrowing, you get to $5 trillion.”
— Jennifer Psaki, Obama campaign traveling press secretary, Oct. 7, 2012
$5 trillion! It’s such a big figure.
President Obama says Mitt Romney wants to cut taxes by $5 trillion over 10 years; Mitt Romney adamantly denies it. He has a new ad slamming Obama for this claim — while repeating a charge that Obama has a secret plan to raise taxes that we already deemed worthy of Three Pinocchios.
So the question arises: Is the Obama claim accurate?
Psaki, an Obama spokeswoman, laid out the math to reporters on Sunday. There’s just one problem: Romney also has said he will make his plan “revenue neutral” by eliminating tax loopholes and deductions, much as Ronald Reagan did when he passed a tax reform in 1986.
And there’s another problem: Romney has not provided many details about which deductions he would eliminate. He has suggested the home mortgage deduction, charitable contributions and employer-paid health insurance might be protected; he has also indicated he is thinking of some sort of cap on the amount of deductions a taxpayer could claim.
Moreover, the nonpartisan Tax Policy Center has analyzed the specifics of Romney’s plan thus far released and concluded that the numbers aren’t there to make it revenue neutral. In last week’s debate, Romney countered that “six other studies” have found that not to be the case, but those studies actually do not provide much evidence that Romney’s proposal — as sketchy as it is — would be revenue neutral without making unrealistic assumptions.
Given the uncertainty, the Obama campaign has assumed the worst about Romney’s plan — that it would mean higher taxes for middle-class Americans — even though, as Romney has stated, there is no chance he would try to implement such a plan as president. Moreover, the director of the Tax Policy Center has taken issue with Obama campaign ads making such claims, saying the organization’s study merely proves that Romney’s numbers don’t add up.
Still, Romney’s running mate, Paul Ryan, has suggested that tax reductions would take preference over revenue neutrality. Romney himself has been inconsistent in describing the impact of his tax plan on the wealthy. In the first presidential debate, he declared, “I will not reduce the taxes paid by high-income Americans.” But in the GOP Arizona debate in February, he said: “We’re going to cut taxes on everyone across the country by 20 percent, including the top 1 percent.’’
Romney appears to wants to have his cake and eat it, too — getting credit for cutting rates without detailing exactly what the impact would be for taxpayers once revenue is recaptured by curtailing tax deductions.
The Pinocchio Test
By itself, the Obama campaign’s $5 trillion claim is an overstatement. Clearly, the campaign recognizes that Romney hopes to cut the cost of the tax cut because it also regularly slams him for the supposed impact of eliminating tax deductions. So the figure reflects just half of the story about Romney’s tax plan — just as Republican often complain about the cost of the president’s health-care law, without acknowledging the tax increases used to make it revenue neutral in the first 10 years.
Still, Romney has left himself open to criticism because he has not specified how he would fill the $5 trillion hole created by his tax plans. If he released fuller details, he would be on firmer ground to complain about Obama’s assumptions. (His campaign should also drop the bogus claim that Obama plans to raises taxes by $4,000, given we have already exposed how that is incorrect.)
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