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The right choice
RELATED ARTICLES
Explain
⌅
Visualizing the Romney Tax Debate
Visualizing the Romney Tax Debate☜Tax reform has emerged as a major bone of contention in the 2012 Presidential election campaign. While President Obama has identified some tax changes, Governor Romney proposes major systemic reform. But is his plan - especially the proposals for individual taxation - viable?☜F1CEB7
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Romney's plan stated
Romney's plan stated☜For individual taxation, Romney proposes rate cuts for all taxpayers to be funded by reducing or eliminating various tax preferences. His plan aims to do this without raising the tax burden on low and middle income taxpayers, defined as $200,000 or less. It also abolishes several other taxes.☜59C6EF
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But does it compute?
But does it compute?☜In early August the Tax Policy Center produced an analysis showing that achieving all the goals of the Romney plan is mathematically impossible. Romney cited six studies in reply. Economists, journalists, bloggers and others then joined in on both sides. So is the plan mathematically possible?☜FFB597
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No - it does not compute
No - it does not compute☜The Tax Policy Center argues in its analysis that the various elements of the Romney plan cannot all be achieved. The TPC paper has been invoked and/or defended by almost all of the critics of the Romney plan in the debate.☜59C6EF
⌃
The TPC case
The TPC case☜The essence of the Tax Policy Centers argument is contained in the excerpt from their paper cited below. We have parsed the argument into a set of premises that must be true for the argument to hold and mapped the debate about each.☜98CE71
⌃
Growth effect claim
Growth effect claim☜In estimating the revenue effect of the Romney tax reform, the TPC authors needed to make some assumptions about how tax reform affects economic growth. They argue that Romney tax reform would have little effect on GDP growth - but that their conclusions are robust even if some growth eventuates.☜FF97FF
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Ignores growth potential
Ignores growth potential☜A number of critics of the TPC study claim it ignores the potential for major tax reform to increase economic growth through its effect on labor supply and capital formation. They argue such macro dynamic effects make the Romney plan viable without burdening low to middle income earners.☜EF597B
⌃
Growth-supportive studies
Growth-supportive studies☜For the growth objection to rescue the Romney plan, the increment to revenue they produce would need to be significant. Several attempts have been made to put ball-park figures on this in the studies the Romney camp cited in reply to the TPC. The main estimates are added separately.☜98CE71
⌃
2. Entin/McBride
2. Entin/McBride☜Stephen Entin and William McBride use a neo-classical growth model to predict the effect of the Romney tax plan over a 5 to 10 year horizon. They predict that the increment to growth will be substantial and will reduce the tax-expenditure savings task by 60 percent, making Romneys plan viable.☜98CE71
⌃
Choice of model
Choice of model☜[STUB - the authors use an explicitly neo-classical growth model - presumably critics of such models may weigh on this but no-one seems to have at this stage - an explicit defense of this type of model is added in opposition to this objection]☜EF597B
■
The right choice
The right choice☜☜EF597B
□
Graph of this discussion
Graph of this discussion☜Click this to see the whole debate, excluding comments, in graphical form☜dcdcdc
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