Mathematically Possible

Correcting the false assumptions of Obama's tax gurus.

It isn't easy being the intellectual frontmen for President Obama's re-election campaign, as the boys at the Brookings-Urban Institute Tax Policy Center are discovering. Their ballyhooed study of Mitt Romney's tax plan looks worse with each new examination.
Mr. Romney's tax plan would cut income tax rates across the board by 20%, while cutting loopholes that mostly benefit those in the highest income classes. The Tax Policy Center claims it is "mathematically impossible" to finance the rate cut without jacking up taxes by $86 billion on the middle class and poor. Mr. Obama has jumped on the study to support his claims that Mr. Romney would raise taxes, though the Republican has proposed no such thing. (See "The Romney Hood Fairy Tale," August 8.)

The study's biggest distortion is its raw assertion that Mr. Romney would refuse to close certain loopholes. In the appendix, the Tax Policy Center lists, among others, two giant tax deductions that it says would go untouched: the exclusion of interest on tax-exempt municipal bonds, and the exclusion of interest on life insurance savings. The study claims that Mr. Romney won't close these because they are incentives for saving and investment.

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Associated Press

Republican presidential candidate Mitt Romney

One problem: Nowhere do Mitt Romney or his advisers say that these deductions can't be touched. Senior economic adviser Glenn Hubbard says these deductions are definitely "on the table." And by the way, the municipal bond interest exclusion mainly serves to encourage states and cities to borrow and spend more, which is the opposite of a saving incentive. Many reform plans dating to Dick Armey's flat tax in 1995 have recommended eliminating both of these exemptions.
Scholars at the American Enterprise Institute examined what happens to the Tax Policy Center math when this error is corrected. AEI economic research associate Matt Jensen found that "Both of these exclusions largely benefit the wealthy, and, according to the Treasury Department, added together their repeal would net upwards of $90 billion that could be redistributed to lower-income individuals. That would go a long way towards balancing the supposed $86 billion windfall for the rich and tax hike on the middle class and poor, and it could make the impossible suddenly possible."
The AEI analysis warns that these numbers change from year to year, but it concludes that by eliminating these two deductions and a few other smaller ones, Mr. Romney can make his math add up. In other words, poof, no tax hike on the middle class.
This won't stop the Obama campaign from making its false claims, but it ought to at least embarrass the media into questioning them. It should also embarrass the analysts at the Tax Policy Center who claim to be nonpartisan, above-the-fray economists but somehow always seem to provide analysis that serves those who want to raise tax rates.