After 47 percent, the presidential campaign’s most incendiary number is $5 trillion. That’s the tax cut planned by Mitt Romney with most benefits going to the wealthy, according to President Obama and his campaign. The president has used the figure repeatedly, as have his surrogates and ads. In Wednesday’s debate, Romney vehemently denied that there ever was a $5 trillion tax cut for the rich. He’s right. The figure is a partisan construct that, somehow, has been given a pass by most of the media as one plausible version of the truth. It isn’t.
To be sure, the Obama campaign’s enthusiasm for the $5 trillion figure is easily understood. It perfectly fits its spoken and unspoken narratives about Romney. He’s not just wealthy and indifferent to the needs of average Americans; he’s also an eager tool of the wealthy. He’d use his office to cut their taxes and advance their interests at everyone else’s expense. He’s not running for president so much as Leader of the Filthy Rich.
Here’s Obama at one rally:
“My opponent, he believes in top-down economics, thinks that if you spend another $5 trillion on a tax cut skewed towards the wealthy, that prosperity will rain down on everyone else.”
It’s a powerful argument, marred only by the fact that the $5 trillion tax cut is a fiction.
Let’s see how this happened.
Some blame belongs to Romney. He has made many vague, inconsistent and contradictory promises. He would cut all individual income tax rates by 20 percent and then offset lost revenue by eliminating tax breaks — but he doesn’t say which ones. He would reduce government spending from today’s 23 percent of gross domestic product to 20 percent, a $450 billion annual cut — but he doesn’t say how. He would balance the budget and raise defense spending. And so on.
On taxes, uncertainties abound. If you cut everyone’s tax rates by 20 percent, the rich — with the highest rates and the biggest tax bills — get the biggest breaks. The present top rate of 35 percent drops to 28 percent; the lowest rate falls only from 10 percent to 8 percent. (Each reduction is one-fifth, or 20 percent.) If that were all, Romney’s plan would indeed represent a windfall for the wealthy. Those with annual incomes exceeding $1 million would save an average of $175,000, estimates the Tax Policy Center (TPC), a research group. (By the TPC’s estimates, the 0.8 percent of taxpayers with incomes of more than $500,000 currently pay 28 percent of federal taxes.)
But there’s also Romney’s pledge to recoup losses by trimming tax deductions, credits and other tax breaks. The package would be “revenue neutral.” The tax system would then end up with lower rates, which would arguably spur faster economic growth. Workers and companies would keep more of any increased earnings; they’d have stronger incentives to work and invest. Although it’s contestable, that’s the theory of “tax reform.”
The trouble is that there’s a major snag, the TPC said in an August report. In practice, the tax breaks affecting the rich (generally, those with incomes exceeding $200,000) aren’t sufficient to offset all of their tax savings from lower rates. Achieving revenue neutrality would compel Romney to raise taxes on the middle class — something he has also vowed not to do.
To justify its $5 trillion figure — the estimated tax loss over a decade — the Obama campaign had to cherry-pick Romney’s proposal and the TPC analysis. It had to ignore any revenue raised by reducing tax breaks and assume that, faced with a conflict between the rich and the middle class, Romney would automatically side with the rich — as opposed to shielding the middle class from any tax increase. On Wednesday, Romney promised to protect the middle class.
The TPC report was widely interpreted as saying Romney would have to raise taxes on the middle class. It didn’t, says the TPC’s Howard Gleckman. It simply pointed out that he couldn’t keep all “his ambitious campaign promises.” He’d have to make choices and modifications. So what else is new?
Politicians exaggerate and simplify. They make more promises than can be kept. They take inconsistent positions. Romney is guilty of this, but so is Obama. Obama says he favors tax reform but would also raise the top income tax rate from 35 to 39.6 percent. That’s the opposite of what most economists consider reform: cutting rates and broadening the tax base. Similarly, Obama has said he would maintain a strong military while rapidly reducing defense spending.
The media are rightly hounding Romney about how he’d offset revenue losses from his proposed cuts in tax rates. But the hounding ought to be evenhanded. Obama needs to be pressed on the many inconsistencies of his promises and policies.