During a Wednesday phone call with reporters, Glenn Hubbard, a Columbia economist who is one of Mitt Romney’s top economic advisers, described the Romney campaign’s latest tax proposal in unusually evocative terms. “If you take the spending and tax pieces together, it’s a narrative of the policy agenda and life under a Romney presidency,” he said. And so it is. But if you really follow the numbers, and the policies they imply, it may not be the narrative the campaign wants.
The proposal’s basic features are a 20 percent cut in marginal tax rates (so the top rate would fall from 35 percent to 28 percent, the second-highest rate would fall from 33 percent to 26.4 percent and so on), a 30 percent cut in corporate taxes and a 13 percent cut in federal spending. But that’s just a string of numbers.
What’s important, as Hubbard correctly says, is the story the figures tell about a Romney administration. And that goes something like this: Under a Romney presidency, there would be a major redistribution — or perhaps it should be called a re-redistribution — from low-income people who depend on government programs such as Medicaid to higher-income folks who pay taxes.
As of now, we don’t know the most important fact about Romney’s tax plan: how much money it would raise. His campaign says those numbers are forthcoming. Outside groups will soon begin releasing estimates as well.
Hubbard says that Romney intends for the plan to be “revenue neutral,” which means that it wouldn’t increase the federal deficit. This is an important admission from the campaign: It says, in effect, that we shouldn’t cut tax revenue below where it is now. But it’s unlikely that independent estimates would find that the plan is revenue-neutral. The Romney campaign says part of the proposal’s cost would come from limiting or ending various deductions, particularly for the rich. But it also says that part of the cost would come from assuming that the plan would lead to faster economic growth — a speculative assumption that would be rejected under the rules Congress uses to evaluate tax proposals.
The Romney camp wants the plan to be “distributionally neutral,” which means that the tax burdens on various income groups wouldn’t change. We won’t know if that’s the case until we see independent estimates. But assuming the plan kept taxes on the top 1 percent of wage earners exactly where they are now, that would be $87,000 less than under President Obama’s plan, according to the Tax Policy Center. And so the deficit reduction that Obama envisions from raising taxes on the rich would have to come, under Romney, through spending cuts.
What we can say with some confidence is that if the Joint Committee on Taxation looked at Romney’s proposal, it would score it as lowering revenue. That would mean projected deficits would rise. And the corresponding spending cuts would have to be even larger than is currently the case, and much bigger than would be the case under Obama’s proposals. So under a Romney administration, at least part of the narrative is clear: Taxes would go down, and the need for spending cuts would greatly increase.