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Right Turn
Posted at 01:00 PM ET, 08/07/2012

Taxes, taxes!

President Obama is seemingly convinced he can win this election with character assassination and class warfare. And his supporters continue to cheer the effort, certain that the public is weak on the facts and that the Romney campaign is shaky in its rapid-response skills. It might be a smart gamble.

Obama’s latest pithy contribution to the politics of envy:

“This economic crisis didn’t change our character. It didn’t change who we are. It just made our mission that much more urgent.”
“We’ve got the best workers in the world, we’ve got the best entrepreneurs in the world.” He said what’s standing in our way right now “is our politics.”
He blamed “the uncompromising view that says we should be going back to the old top-down economics that got us into this mess in the first place.”
“The entire centerpiece” of Romney’s economic plan is a $5 trillion tax cut, he said.
The president spoke of the Tax Policy Center’s analysis of Romney’s plan again. “It’s like Robin Hood in reverse — it’s Romney-hood.”
The crowd laughed and roared and whistled its approval.
“That’s the choice in this election. That’s why I’m running for a second term as president

The problem with this is that it is false, and it’s revealing of Obama’s own view that our successes, and our income, belong to the government. (This scene comes to mind.) Obama’s “Robin Hood in reverse” suggests that the rich are “getting” something from the government if they get to keep more of their own money. It’s shocking, actually (not to mention false) that changing the tax code to reduce the tax burden on some taxpayers — not actually sending a check to the rich — in Obama’s eyes would be a gift, an act of generosity by the state. But that is the least of the problem here.

Let’s start with some facts. Romney’s tax plan is not a $5 trillion cut. He’s said many times that his plan would be revenue-neutral. Unless Obama has some secret memo (maybe Sen. Harry Reid [D-Nev.] told him about it)saying that Romney really plans to suck the Treasury dry, he should stop lying.

Unsurprisingly, Obama is back to the Tax Policy Center study. The premise of the study, whose three co-authors include a former administration official and a White House confidante who visited the White House repeatedly last year, is that there aren’t enough deductions to take from the rich to lower their rates and keep the plan revenue neutral. Obama spinners conclude therefore that Romney must be plotting to take money from the middle class and poor (most of the latter don’t pay any income tax now thanks to the Bush tax cuts).

I spoke to two of the authors of the TPC report last night, Adam Looney and Sam Brown of the Brookings Institution and exchanged e-mails with them again today. It is easy to see how the media was confused. The authors insist that very unacademic language (such as saying the Romney plan is “impossible”) is justified because their study is the equivalent of a “mathematical proof.” It is nothing of the sort, if you dig deeper.

The study is no more than a model, a model in which the assumptions do not correspond to the Romney plan (because the plan has insufficient details). In fact, the authors never got any specifics from the Romney plan. So, as I reported previously, the authors simply stuck in what they think the Romney people could use (continuing to exclude municipal bond interest and life insurance contracts from income, for example). And wouldn’t you know it, the numbers don’t “add up”! The assumptions made by the authors may be good tax policy or bad tax policy, but that is not what the authors say they are doing; instead they say they are showing that Romney’s plan is “impossible.”

Not only do the authors assume what Romney would include and exclude in the tax code under his tax plan, but they don’t tell us how they calculated the conclusion that there isn’t enough money in the upper- income earners’ deductions or even where specific data come from. The TPC authors cobbled together tax data and made their own calculations to try to assess how much certain deductions and exclusions are “worth.” (The deductions and exclusions were then eliminated to pay for the rate reduction.) But the authors don’t reveal what those calculations are, what percentage of the total each represents, where the data for each one comes from or any other concrete documentation so we can evaluate their work. Some of the data, especially how much of tax expenditures are attributable to the top income group, aren’t publicly available. Looney says he doesn’t know how they figured that out, but he said the model developers may know.

The authors say all the data on the cost of tax expenditures are embedded in “the model,” and much of it can be found at the Office of Management and Budget or with the Joint Committee on Taxation, but they have no plans to reveal any information from the model or a follow-up to the study (e.g., provide an appendix with hard data).

Looney concedes that the total available pool of tax expenditures is about $1.3 trillion. However, with all the assumptions thrown in, the TPC only uses a portion of that ($274 billion) to offset the reduction in rates ($360 billion) for those earning moore than $200,000. No wonder the “math doesn’t add up.” It is not hard to get back that $86 billion differential by altering the TPC’s assumptions. For example, if you tax muni bond interest (almost entirely received by upper-income people) that $86 billion goes down to $31 billion. As I’ve noted before, there are many other ways to get that money back (corporate taxes, eliminate other exclusions, nudge up corporate taxes) and to increase revenue purely by using an accurate growth projection.

The authors’ flat statements, such as it is not “mathematically possible” to design a plan along the lines Romney suggests, are not accurate. In fact, if you use different assumptions, are willing to look at additional bases broadeners, consider the corporate tax reforms and use a realistic growth projection [UPDATE:The Baker Institute at Rice University is out with such a study today], it is not “impossible” at all. And of course, the cost the authors attribute to those tax expenditures might be wrong, but we can’t tell.

Looney denies that the authors consulted with the White House in advance of the study’s release. Nevertheless, within a couple of hours of the report’s release, the Obama team had a reference to the report in the president’s speech in Mansfield, Ohio. Quite remarkable, when you think how much work goes into crafting presidential statements. But certainly the liberal think tank, which advocates tax hikes, and the White House are simpatico.

In any case, the Tax Policy Center’s boost for the Obama class warfare gambit is perfectly timed to help shift the public attention from the failure of the Obama economy to generate wealth and jobs to the left’s never-ending task to convince the public it is being ripped off by the rich and powerful (Robin Hood!).

The facts don’t support that theory. The tax code is progressive to a degree most voters and media chatterers are unaware. The Wall Street Journal’s David Wessel reports, “In the 2000s, the top 5% averaged 28.4% of the income and paid 40.3% of the taxes. . . . In 2007, the bottom 40% received 14.9% of the income (including the value of government benefits) and paid 5.9% of all federal taxes. In 1979, they had a bigger share (17.4%) of the income and paid more (9.5%) of the taxes.” The non-rich aren’t paying “more” so the rich pay less. In fact the non-rich are paying less and less in income tax:

Across the earnings spectrum, Americans’ share of income that went to taxes fell in the 1980s, rose in the 1990s and fell again in the 2000s. This year, taxes and other receipts will cover only two-thirds of federal spending; the government will borrow the rest.
For those in the top 1%, whose incomes are more volatile than others, the average tax bite in 2007 was 28.9%, below the 1995 Clinton-era peak (35.3%) but higher than the 1986 Reagan-era trough (24.6%.)
Most Americans, though, have seen the share of their income that goes to taxes fall steadily. For earners in the middle, the tax bite eased from 18.9% in 1979 to 16.6% in 1999 to 14% in 2007 even before the recession and recession-fighting tax cuts.

The real question, however, for Obama is this: How does taxing the rich more, as he plainly wants to do, help the middle class and poor? It might pump up his left-wing base, but that is a far cry from generating wealth, growth and jobs. When you are obsessed with the former, the latter gets short shrift.

By  |  01:00 PM ET, 08/07/2012

 
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