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Brill - small is enough OpposingArgument1 #231149 Some commentators point out that only a small dynamic growth effect is needed by the Romney plan - especially when such an effect is considered in conjunction with putting some tax preferences excluded by the TPC back on the table.

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Visualizing the Romney Tax Debate »Visualizing the Romney Tax DebateVisualizing 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 statedRomney'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?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 computeNo - 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

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The TPC case »The TPC caseThe 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

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Growth effect claim »Growth effect claimGrowth 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 potentialIgnores 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

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The TPC defends »The TPC defendsThe TPC defends☜The TPC has three lines of defense of its assumption on the growth effect of tax reform - firstly, they point to difficulties in estimating such effects; secondly they cite studies showing such effect will be small; thirdly they claim their analysis is robust even if some such growth is assumed.☜EF597B

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Growth effect small »Growth effect smallGrowth effect small☜In replying to this criticism the TPC cites research by the CBO and the Treasury department indicating the growth effect of Romneys proposals is likely to be small because the base-broadening measures will provide opposing incentives to the rate cuts -and would be small even without broadening.☜98CE71

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Brill - small is enoughBrill - small is enough☜Some commentators point out that only a small dynamic growth effect is needed by the Romney plan - especially when such an effect is considered in conjunction with putting some tax preferences excluded by the TPC back on the table.☜EF597B

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Link[1] The Romney Tax Plan: Not a Tax Hike on the Middle Class

Author: Alex Brill - Research Fellow, American Enterprise Institute
Publication info: 7 October 2012 - article in The American online magazine
Cited by: Peter Baldwin 4:42 AM 18 October 2012 GMT
Citerank: (4) 231146The critics challengeCritics of the TPC analysis question the exclusion of two major tax preferences - the exclusion of interest on state and local bonds and the exclusion of inside-buildup on life insurance vehicles. According to the TPC eliminating these exclusions could raise $45 billion in tax revenue.13EF597B, 231222Brill - what about capital formationAlex Brill has responded to the TPC's quotation of his paper. While accepting the point about labor supply, he claims that tax reform of the Romney type would lead to increased capital formation and improved allocation of resources in the economy which would boost growth.13EF597B, 231226Obamacare inclusionThe revenue baseline is inflated. The TPC included in its baseline Obamacare taxes which Romney has not pledged to offset. This point is conceded by some defenders of the TPC analysis such as Josh Barro (see citation).13EF597B, 232790Brill articleThe Romney Tax Plan: Not a Tax Hike on the Middle Class1198CE71
URL:

http://www.american.com/archive/2012/october/the-romney-tax-plan-not-a-tax-hike-on-the-middle-class/article_print

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Even modest economic growth makes a difference. And finally, the important factor that I discussed above. Based on Table 3-1 of the “Analytical Perspectives” report by the president’s Office of Management and Budget, I compute that if the economy were to grow just 0.1 percentage point faster per year as a result of the reform, the additional revenue in 2015 would be approximately $13 billion. The result: A $12 billion tax increase on the middle class actually becomes a tax cut.

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Entered by:- Peter Baldwin
NodeID: #231149
Node type: OpposingArgument
Entry date (GMT): 10/17/2012 9:34:00 AM
Last edit date (GMT): 11/5/2012 7:09:00 AM
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