It’s all too easy to hyperventilate about the importance of this or that campaign development in an electorate where swing voters are few and pay little attention to the news, but Mitt Romney appears to have blundered his way into a bona fide political disaster with his tax plan. Republican policy elites and fund-raisers fervently believe, for both moral and economic reasons, in the paramount necessity of cutting taxes for the rich. This position is, however, a political trap; the vast majority of Americans want taxes on the rich to be higher, not lower, and the commitment to cutting taxes on the rich further requires larger entitlement cuts or higher middle class taxes, both of which are more unpopular still.
At the outset of his campaign, Romney tried to avoid committing himself, but by February, with GOP rivals outflanking him and facing steady pressure from Republican elites, he declared himself in favor of a 20 percent tax cut, a move greeted with joy from anti-tax activists. But he still attempted to hide the ball. Romney promised that his rate cut would be matched by closing tax deductions and some unspecified allowance for economic growth, and thus would not decrease the level (or the share) of taxes paid by the rich. Romney’s boast that his plan could not be scored revealed the essential calculation. But the campaign miscalculated. Yesterday’s study by the Brookings Institution and the Tax Policy Center showed that, even allowing for the faster growth predicted by Romney’s own economist, there aren’t enough tax deductions to account for the cost of the lower rates for the rich — raising taxes for the middle class would be the only way to make Romney’s promises add up. Romney didn’t hide the ball well enough.
Obama has already unleashed an ad making the simple and devastating point that Romney is proposing to cut taxes of people like himself and raise them on the vast majority of the public:
Romney’s play here is to turn the study’s findings into a matter of partisan dispute. It has mustered two arguments. The first is that the Brookings study cannot be trusted because its authors are biased. (Romney adviser Eric Fehrnstrom called the study a “joke.”) The Weekly Standard pushes this line, noting that one of its authors visited the White House twelve times. Unfortunately, Romney’s campaign itself once cited the Tax Policy Center (accurately) as “objective,” and its findings are basically simple math.
Romney’s second argument is more convoluted. The study examined the effects of Romney’s income tax proposals. He has also promised to reform the corporate tax code. Romney policy advisor Lanhee Chen argued yesterday that Romney corporate tax reforms could increase economic growth even more. So, even though the study allowed for optimistic growth assumptions of the income tax cuts, it didn’t also allow for optimistic assumptions of the corporate tax cuts.
Of course, Romney doesn’t really have a corporate tax reform plan. He says basically the same thing everybody says. The corporate tax code is filled with deductions and loopholes. The statutory rate (35 percent) is unusually high by international standards, but the effective rate is unusually low. We could lower the rate to, say, 28 percent, close a bunch of deductions and loopholes, and have a fairer tax code. That’s what Romney endorses, and it’s also what Obama endorses.
But the whole trick here is assembling an actual legislative coalition to pass a tax reform plan. The whole problem is that companies that benefit from loopholes and deductions lobby to keep them. Romney isn’t offering a policy blueprint for what deductions he would take away, let alone a plausible scenario to pass such a plan even if it did exist. He’s just using the mystical economic pixie dust of the nonexistent corporate tax reform plan in order to hold out the hope of some missing ingredient, some unmeasurable X factor, to keep his proposal in the safe dreamworld where the cruel tyranny of math cannot apply.
But the math is inescapable. When Romney looks back at the positions he adopted during the Republican primary — the hard line on immigration, the embrace of Paul Ryan — his pander to supply-siders may loom as his largest mistake.