Let me emphasize that my criticism of Obama’s campaign is not an endorsement of Romney’s tax plan, many of whose features I oppose. Among other items, I dislike his proposals (a) to continue taxing “capital income” (dividends and capital gains) at lower rates than labor income; (b) to abolish taxes on capital income for taxpayers with incomes less than $200,000; (c) to eliminate the estate tax. Ditching these proposals might make it possible to achieve a simpler income tax system with a top rate of 30 percent.
The Tax Policy Center report concluded that Romney can’t cut tax rates 20 percent while raising the same amount of tax revenue and not increasing taxes on the middle class. Something would have to give, the TPC said, because Romney has put too many loopholes for the rich off-limits. But even if the TPC is broadly correct — as I think it is — it does not follow that Romney plans a $5 trillion tax cut for the rich.
The $5 trillion figure never appears in the report. Rather, the report estimates the cost of Romney’s plan for 2015. Altogether in 2015, his proposed rate cuts would reduce tax revenues by $456 billion, the TPC reckons. Multiplying that by 10, and assuming some inflation and economic growth, gives a roughly $5 trillion estimate for a decade.
Here’s why this isn’t a $5 trillion cut for the rich. Start with the $456 billion in 2015. Only $360 billion of that reflects reductions in individual tax rates. The rest involves the corporate tax and isn’t analyzed by the TPC. The study assumes — perhaps implausibly — that any lost revenues from lower corporate rates would be offset by fewer corporate tax breaks. Over a decade, that’s slightly more than $1 trillion of the $5 trillion off the table.
It’s true that most individual rate reductions would go to wealthier taxpayers, because the wealthy pay most federal taxes. (In 2012, the 4 percent of taxpayers with incomes exceeding $200,000 paid nearly 45 percent of federal taxes, the TPC says.) Still, Romney’s proposed rate cuts also benefit those with incomes of $200,000 or less; that’s one dividing line between upper-middle class and wealthy. The TPC estimates that these rate cuts are worth $109 billion for 2015. Over a decade, that’s slightly more than another $1 trillion not going to the rich.
The remaining rate cuts for the wealthy equal about 60 percent of the $5 trillion over a decade, or $3 trillion. Romney contends that closing existing tax breaks would recoup lost revenues. Not so, says the TPC. There aren’t enough. Still, the TPC estimates that two-thirds of the lost revenues might be offset by fewer tax breaks. If so, this eliminates another $2 trillion over a decade available for tax cuts for the rich.
The remaining $1 trillion is still a lot of money, and Romney can be harshly criticized for making more promises than he can keep. Which ones would he break? In the first debate, he was emphatic. He wouldn’t propose any tax cut that increased the deficit or the middle class’s tax burden. One way to keep these pledges is to pare back rate cuts for the rich or attack some tax preferences put off-limits by Romney. Then, the net tax cut for the rich would be zero.
The TPC never claimed to find a $5 trillion giveaway to the rich. News organizations peddling this line have unwittingly enlisted in the Obama campaign.