Wednesday, August 8, 2012

GOP Establishment's Shameless Attack on Nonpartisan Think Tank

The GOP establishment is in full attack mode after a Tax Policy Center report concluded that Mitt Romney couldn’t offset the effect of his proposed tax cuts by simply closing loopholes benefiting the rich. Either he would have to raise taxes on middle- and/or lower-income households, or his proposal will increase the deficit.
The Obama campaign ran with the first possibility and started saying that Mr. Romney was proposing a giant tax increase on the middle class. The Romney campaign attacked the study–perhaps not surprisingly (TPC was attacked from both sides for their analysis of the 2008 campaign proposals) and then its various surrogates started attacking the credibility of the TPC.
I’ll admit that I am certainly not unbiased on this issue as I was a co-founder of the TPC and served as its director until 2009, when I moved to Syracuse University. I’m enormously proud of TPC and think it has done a great deal to shed light on the tax policy debate, which had previously been incomprehensible to all but a few Washington insiders and academics. I’m still on TPC’s advisory board and occasionally write for its blog,, but I have nothing to do with its day to day operations. Obviously, I’m only speaking for myself here.
First, some background. Here’s how the TPC’s Howard Gleckman summarized their analysis:
[T]he study highlights … [t]he deep contradictions embedded in Romney’s tax platform. Like most candidates, the former Massachusetts governor has made many promises. And like most, he cannot keep them all.
In this case, Romney has promised at least five big things. They are:
  • To start, he’d make all of the 2001 and 2003 tax cuts permanent but repeal the 2009 Obama tax cuts and the tax increases included in the 2010 health reform law.
  • After that, he’d cut tax rates by 20 percent across the board and eliminate both the Alternative Minimum Tax and the estate tax.
  • He’d eliminate taxes on investment income for couples making $200,000 or less (individuals making $100,000 or less) and keep current low rates for those with high incomes.
  • He’d do this without increasing the budget deficit (beyond the cost of extending the 2001-2003 tax cuts) by curbing some tax preferences.
  • He’d do it in a way that retains the progressivity of today’s tax system.
Romney’s problem is he cannot possibly achieve all of these goals. He is doomed by both political reality and simple mathematics.
Romney himself never says how he will make all this happen. Indeed, his tax platform includes a gaping hole. He says he’d finance these rate cuts by broadening the tax base–that is, by reducing some of the tax preferences that litter the Revenue Code. But he never says which of these deductions, credits, or exclusions he’d scale back—or how.
Thus, the real question is not whether Romney is proposing a huge middle-class tax increase (he isn’t). It is which of his ambitious campaign promises he will fail to keep.
As I noted a few days ago, the nonpartisan Tax Policy Center did what it’s always done, which is try to pierce the smoke of campaign rhetoric to reveal logical inconsistencies in Governor Romney’s proposal.  TPC often tries to answer the question: What does all this mean?  In this endeavor, TPC has been an equal-opportunity gadfly.
TPC’s critics had no problem when a couple of years ago, a TPC analysis pointed out that President Obama couldn’t possibly get the deficit under control by simply raising taxes on the rich.  Right-wingers’ favorite tax talking point is that nearly half of households pay no federal income tax.  They rarely note that this fact was first reported by the “liberal” Tax Policy Center.  Urban Institute Fellow, Rudy Penner, a former CBO director appointed by Republicans, wrote a pointed critique of the value and usefulness of the kind of distributional analyses that TPC produces and redistributive tax policies. It was TPC discussion paper number 13.
Conservatives seem to think the TPC epitomizes objectivity when its analysis comports with their biases, but is a liberal shill when the other side finds TPC’s conclusions useful.
For example, the McCain presidential campaign was not always happy with the TPC, but they were happy to cite “a report from the nonpartisan Tax Policy Center as evidence that Obama’s tax plan would amount to more government giveaways. The Tax Policy Center analyzed Obama’s tax proposals (as described by his economic advisers) and concluded that in 2009, his plan would, in fact, result in $100-billion in government outlays to people who have no income tax liability.”
As many have noted, Mitt Romney viewed TPC as nonpartisan and credible when he used TPC’s analysis to attack primary opponents.
I should also point out that there has never ever been a political litmus test for employment at TPC, although there is a very high bar for competence.  Several top TPC affiliates, including director Donald Marron, have held high level  Republican appointments in the executive branch and CBO. Several have held positions in Democratic Administrations.

What about the specific complaints about TPC’s study.  One is that TPC made up details that Romney never specified.  Yes, that’s true. TPC did the same thing to Obama and McCain in 2008.  Both campaigns found it annoying, but we didn’t think that political campaigns should be able to hide behind magical unspecified details to make their plans sound implausibly rosy. Tax and budget policy involves trade-offs and the public should be in a position to weigh in on which difficult choices they most favor (or least object to).  The public can’t evaluate those trade-offs unless the numbers add up and if the politicians won’t produce fully specified plans, it’s perfectly appropriate in my view for TPC to try to fill in the blanks as best they can given what the candidates have said–and make clear what their assumptions are.
But one line of attack is that tax policy doesn’t involve difficult trade-offs: cutting tax rates produces a surge of economic growth and more tax revenues. I wish that were true, but it’s not supported by evidence. TPC explained why revenue-neutral tax reform is not likely to produce a large macro response.  But they also gave the Romney campaign the benefit of the doubt by doing a simulation assuming the comparatively large macro response predicted by prominent Republican economist (and Harvard Professor) Greg Mankiw.  It did not change the qualitative conclusions.
Romney’s economic advisers are apparently predicting that GDP growth will surge to 4% per year, which over time would produce a massive increase in GDP due to the power of compounding.  (Historical GDP growth has averaged about 3 percent per year.) A scathing Wall Street Journal editorial said this was completely reasonable given that Obama’s OMB was projecting 4% growth in 2014 and 2015.  The Journal is probably right that such short-term growth is unlikely, but it’s not implausible.  The economy is far below capacity right now and it is normal for growth to exceed trend levels as the economy recovers from a recession.  Sustained growth of 4%, however, is completely outside the range of historical experience.  It is pure wishful thinking, or ”voodoo economics” in President George H.W. Bush memorable phrase.
The critics argue that the Tax Reform Act of 1986 was able to achieve a top tax rate of 28% without sacrificing revenues or shifting tax burdens onto the middle class.  The Bowles-Simpson commission and the Bipartisan Policy Center proposals would have accomplished something similar.  But all of those plans taxed capital gains and dividends at the same rate as other income (currently, the top rate on such investment income is 15%) and cut back on subsidies for retirement and other savings. TPC assumed, I think correctly, that Mr. Romney would not support such changes based on statements made by the candidate and campaign staffers.
If Mr. Romney is willing to tax capital gains and dividends at the same rate as other income, that would be big news (and a huge tax hike on the GOP candidate). In that case, by all means, TPC should update its analysis (and applaud the candidate for proposing something no Republican since Ronald Reagan has had the courage to support).
If not, maybe we should talk about whether Mr. Romney’s or Mr. Obama’s plan would be best for the economy.  The TPC analysis makes that assessment more feasible.
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