“Chances are you pay a higher tax rate than him [Mitt Romney]….Mitt Romney made $20 million in 2010 but paid only 14 percent in taxes…probably less than you. Now he has a plan that would give millionaires another tax break. And raises taxes on middle class families by up to two thousand dollars a year.”

— Voiceover of new Obama campaign ad, “Stretch”

The Obama campaign rushed to take advantage of a new Tax Policy Center study about Mitt Romney’s tax plan, combining it with information about Romney’s 2010 tax return. We have looked at these issues before but as these ads go, the language is fairly careful and restrained. Let’s take a deeper look.

The Facts

Romney certainly made a lot of money in 2010 — $21.7 million, according to his tax return — and yet his tax rate was about 13.9 percent. As we have noted before, he achieves this rate because much of his income is treated as capital gains and dividends, which are taxed at a preferential rate of 15 percent, and because he donates about 14 percent of his income to charity. (Reuters wrote an interesting article showing that Romney’s donations of appreciated stock to the Mormon church further shielded him from possible capital gains taxes.) 

 In the past, we gave the Obama campaign Three Pinocchios for saying that Romney paid “much less than what many middle-class families pay.” But the language in this ad is much more accurate.

The ad says “chances are you pay a higher rate” and that Romney’s 14 percent rate is “probably less than you” pay. Most people pay relatively little in individual income taxes, but (unlike Romney) also contribute a good portion of their income to payroll taxes (such as Social Security and Medicare). Employers also pay a share, which most economists say is taken out of a person’s wage.

According to the nonpartisan Tax Policy Center, the effective rate for the middle 20 percent is 15.5 percent, including all payroll taxes. That is higher than Romney’s 13.9 percent rate, so there is more than a 50-50 chance that a person’s rate would be higher than Romney’s tax rate. (As we have noted, the numbers are more favorable to Romney if you exclude payroll taxes paid by employers.)

The rest of the ad concerns the new study by the Tax Policy Center, which examines whether the numbers add up in Romney’s tax plan as described on his Web site. As we have noted, Romney has not detailed how he would cut tax rates by 20 percent and yet eliminate enough tax loopholes to keep the plan revenue neutral.

The study essentially concludes that, no matter what choices are made, taxes will be lower for the very wealthy while raised for most middle and lower income taxpayers. That’s because there are not enough loopholes to close for the rich — and the real money available to boost revenue would come from getting rid of tax credits that mostly benefit middle-income taxpayers, such as the home mortgage deduction. The study came to this conclusion even after trying to grant every positive assumption to the Romney plan.

The ad accurately describes the main points of the study, using headlines such as from The Wall Street Journal to underline its points: “Study: Romney’s Tax Plan Hits Middle Class.”

The Romney campaign has emphatically rejected the study on several grounds. First, it claims the paper is “biased” because of the involvement of an economist (Adam Looney) who worked on the staff of Obama’s Council of Economic Advisers. Second, it says it ignores “pro-growth elements” of Romney’s plan, such as corporate tax reform and reduced deficits. Finally, it says the study admits it is not really examining Romney’s plan.

The charge of bias is pretty ridiculous. Looney, the third name on the paper, was an economist, not a principal, on the CEA and spent six years as an economist at the Federal Reserve Board. The economist positions at the CEA, in fact, are nonpartisan. Indeed, another co-author of the study, William Gale, was an economist for the CEA during the George H.W. Bush administration.

The Romney campaign would have more credibility to claim bias if it had not approvingly cited the Tax Policy Center as providing “an objective, third-party analysis” when the group critically examined the tax plan of Texas Gov. Rick Perry.

Readers of this column know that we have frequently cited the Tax Policy Center’s work. In a town full of partisans, the group is about as even-handed and nonpartisan as possible. The staff roster consists of serious and credible analysts with experience working in the administrations of both parties.

It is also a bit rich for the Romney plan to complain that the paper does not really examine Romney’s plan — or is missing key elements — when the major problem with the plan is that Romney has released precious few details about it. The Tax Policy Center analysis makes clear that a full review is not possible because “certain components of his plan are not specified in sufficient detail.” In other words, if Romney would actually spell out those details, then a full review would be possible.

(We asked the Romney campaign for such details, but only received talking points criticizing the Tax Policy Center study.)

We have previously noted internal contradictions about Romney’s plan. Romney has cited the Simpson-Bowles deficit commission as pointing a path to cutting rates while increasing revenue. But the Simpson-Bowles proposals would actually increase the tax burden on the top 20 percent of taxpayers — which the Romney campaign says he opposes.

In any case, the Obama ad correctly describes the key findings of a study by a highly credible organization. The figure of “up to $2,000” in tax increases for “middle class families” comes from page 18 of the study, which notes that the average tax increase for taxpayers with children and income below $200,000 would be $2,041. (The apparent tax increases are smaller for middle-income taxpayers without children.)

The ad concludes by asserting that under Romney’s tax plan, “he pays less, you pay more.” That is the most debatable part of the ad, because Romney insists that under his plan the wealthy will not pay less (or more). He obviously also has not proposed a $2,000 tax increase on middle-class families. But thus far he has not shown how he would achieve his tax goals, so the Obama campaign can certainly call him on his fuzzy math.

The Pinocchio Test

This ad is tough, but we cannot fault the accuracy of its key points. To some extent, the Romney campaign has been hoist with its own petard by refusing to provide sufficient detail that shows how the numbers add up in Romney’s tax and budget plans. So we are left with the judgment of a respected and independent third party.

We hold campaign ads to a high standard, particularly attack ads. If Romney releases the missing details, and a new analysis finds that Romney can meet the stated goals of his tax plan, then we can certainly revisit this analysis. But, until then, for the first time in this frequently nasty campaign, we award a rare Geppetto Checkmark for a campaign ad.


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