We showed, in addition, that the same qualitative conclusions arise even when we added in feedback effects of tax changes on economic growth and revenues, using estimates of those effects that were developed by Harvard professor, and economic advisor to the Romney campaign, Greg Mankiw.

Citerank: (9) 230959Growth effect smallIn replying to this criticism the TPC cites research by the CBO and the Treasury department indicating the growth effect of Romney's 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.1198CE71, 231212Brill and Viard studyThe TPC cites a study by Alan Viard and Alex Brill indicating that lowering tax rates while broadening the base generally does not reduce work disincentives because it leaves effective tax rates unchanged. Elsewhere Brill has defended the Romney plan.1198CE71, 231214CBO and JCT studiesIn addition to the Brill and Viard study the TPC paper refers to additional studies from the Congressional Budget Office and Joint Committee on Taxation that it claims show that tax cuts even without base broadening would have a small effect.1198CE71, 231725The TPC defendsThe 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.13EF597B, 232180Modelling difficultiesIn responding to the growth criticism the TPC remarks that to do this properly, all manner of other things would need to be included in the analysis - not just the impact of tax reform in isolation.1198CE71, 232648No - it does not computeThe 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.959C6EF, 232649The TPC caseThe essence of the Tax Policy Center's 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.1198CE71, 232650Available savings claimThe TPC set out a number of assumptions concerning the amount that could be raised by eliminating tax expenditures that benefit high income earners in the individual tax system (the analysis does not include corporate tax). These are enumerated in the cited section.22FF97FF, 232652Growth effect claimIn 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.22FF97FF

Nevertheless, the above results are not qualitatively different even if one were to assume that tax cuts pay for themselves according to the rule of thumb estimates from Mankiw and Weinzerl (2006). This model, which is based on an assumption that saving is infinitely elastic, may well overstate the capital income response, in addition to the other concerns raised above. Moreover, this model that assumes that rate reductions are paid for with lump sum tax increases, which means their model would overstate the growth effects in the context of a tax plan that included progressive reductions in tax expenditures.

If we assume, as in their model, that 21.3 percent of capital income taxes and 13.5 percent of labor income taxes are offset by higher growth after five years this would imply a revenue offset of 14.7 percent. (Assuming the tax cuts are 85 percent labor and 15 percent capital, which is roughly the share of labor and capital income reported on individual tax returns).

According to this assumption, the tax cuts would result in revenue reductions of $307 billion (instead of $360 billion). If we assume that base broadening therefore only needs to pay for $307 billion in revenues (after five years), even in this scenario, more than 56 percent of all available tax expenditures would need to be eliminated (versus 65 percent without this assumption). Although a tax reform would need to raise $53 billion less through base broadening, this is not be enough to offset the $86 billion net tax increase faced by lower- and middle-income households in the analysis above. Indeed, in this example, even if all of the additional economic growth accrued to high-income taxpayers, and all of the additional revenue were paid by high-income taxpayers, high-income taxpayers would still experience a net reduction in their tax payments. Thus, even in this case, the required base broadening still results in a net tax reduction for the top 1 percent and for taxpayers making more than $200,000, and a net tax increase on taxpayers earning less than $200,000.

Thus even generous assumptions regarding the ability of tax cuts to partially pay for themselves does not change the basic qualitative results.