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.
As it happens, we do know the most important fact of Romney’s spending plan: It would cut spending as a percentage of gross domestic product to 20 percent by 2016. And it would do so while boosting defense spending by billions of dollars. As Romney says, that would require about $500 billion in cuts in 2016 — all of which would have to come from domestic spending. The Center on Budget and Policy Priorities says that although Romney’s numbers were correct a few months ago, recent revisions put the total closer to $600 billion.
The CBPP ran the math on the sort of cuts Romney would need to reach his target. Using a realistic baseline known as “current policy” — which assumes that George W. Bush-era tax cuts are extended and Medicare is protected from automatic cuts that Congress never permits — Romney would need to reduce all domestic spending by 20 percent to make his numbers work. But his proposal says his changes to Medicare and Social Security would affect only “younger generations,” which suggests that large cuts wouldn’t be made to those programs in the next few years. And once those programs are taken out of the mix, Romney would need to cut all domestic spending by almost 40 percent to make his numbers work.
We’re back to numbers now. So let’s try to return to narrative. If Romney cut Medicaid entirely — took it from the $407 billion it is projected to cost in 2016 and moved it to zero — his math wouldn’t work. If he then excised all spending on food stamps — taking them from a projected $80 billion in 2016 to nothing — he still wouldn’t be there.
Romney won’t do that, of course. His cuts presumably would be distributed among many, many more programs. But that thought experiment gives a sense of the size of the cuts he would need to make. And the reality is that he wouldn’t have many painless places to make them. The largest spending program left to him is Medicaid, which provides health care to low-income Americans, children and the disabled. Retirement costs for federal employees make up a large pot of money, but those promises cannot be broken. Transportation infrastructure is expensive, but roads will still need to be repaired. And so on.
The Romney team disputes the CBPP’s math, although I couldn’t get his campaign to tell me why. I’m guessing it’s because the CBPP doesn’t include its estimates of higher growth, but I haven’t been able to confirm that. The campaign says it will be releasing a more detailed list of its proposed spending cuts soon. But for now, the narrative is clear: A Romney presidency would be tough on those who depend on government programs and good for those who pay high taxes. That suggests a Romney presidency would, at least in its first few years, reduce the deficit by asking much more from the poor than from the rich. Is that really the narrative they want?