People are always giving Mitt Romney's tax plan a hard time, using math to unfairly claim it doesn't work at all. But a respected Harvard economist has determined that Romney's plan will totally work. All it takes is a little baking soda, some elbow grease and one middle class, crushed into a fine powder.
That economist is Martin Feldstein, former chair of President Reagan's Council of Economic Advisers, who has all but agreed with the criticisms of President Obama and other, more neutral, observers, that Romney's plan can only work if taxes are raised on the middle class.
The main distinction here seems to be how you define "middle class:" In Romney and Feldstein's world, that is people making less than $100,000. Otherwise he's in agreement with the critics: People making $100,000 or more will get a tax increase to help pay for Romney's tax plan that most benefits the very wealthy.
Mitt Romney defines "middle class" as people making $200,000 or less (see page 41 of his economic plan), while the Census Department says median household income between 2006 and 2010 was a little less than $50,000 per year.
Feldstein recently wrote an op-ed in the fever swamp of the Wall Street Journal's editorial page to defend Romney's tax plan from criticism by both neutral observers and President Obama. He described a theoretical universe in which Romney's tax plan -- to cut taxes while also not blowing a hole in the budget -- would not immediately be consumed by a cleansing fire of reason.
Some economists, such as Brad DeLong at Berkeley, scratched their heads and said, "Hang on, this doesn't make any sense at all, unless you jack up taxes on the middle class," which is what both Obama and neutral observers had been saying all along.
And then the matter simmered for a while, except for some expressions of disbelief from the nonpartisan, nonprofit Tax Policy Center, saying Feldstein's defense of Romney's plan did indeed prove their point: That it wouldn't work without raising taxes on the middle class. Feldstein offered a rebuttal to the critics that didn't seem to close the gap between the two views.
Meanwhile, Ezra Klein at the Washington Post was busy going back and forth between Feldstein and some other economists and the TPC, and produced a piece that definitively determined that, yes indeed, the only way Mitt Romney's tax plan would not blow a hole in the budget deficit would be if you jack up taxes on the middle class:
It might be mathematically possible to make Romney’s plan work by sharply increasing taxes on people making between $100,000 and $200,000 so you could cut them on very rich taxpayers. It’s not possible to make the numbers add up if you refuse to raise taxes on people making less than $200,000.
Feldstein's case also rests, Klein says, on some generous assumptions about the benefits of tax cuts to economic growth and the cost of cutting overall tax rates. Without those assumptions, the Tax Policy Center found Romney's plan wouldn't work unless you jacked up taxes on people making even less than $100,000 -- more like $75,000.
Another economist, Princeton's Harvey Rosen, a former CEA chair under President George W. Bush, assumes that lower tax rates will bolster economic growth, income and tax revenues -- supply-side economics, basically -- to make Romney's plan work perfectly without raising taxes on the middle class or cutting taxes on the rich. But this is a controversial approach, to say the least -- with no historical evidence to back it up, per DeLong -- and independent arbiters like the TPC and the Congressional Budget Office don't go near this approach.
Ultimately, most of the controversy is simply about semantics -- i.e., who, exactly is "upper class" or "middle class." If you raise the definition of "middle class" to include people who make between $100,000 and $200,000 a year, there's not much controversy: These people will likely get a tax increase under Romney's plan, even according to Feldstein's analysis.
And everybody is groping in the dark because Romney won't give out any details of his plan, instead defending himself by citing studies like Feldstein's and Rosen's, none of which have any clue about what he'll cut.
For example, Romney claims that his plan would not raise taxes on the upper class, because he'll close a bunch of loopholes for them even as he lowers their tax rate. But he won't tell you what loopholes he'll actually close. And the liberal tax watchdog group Citizens for Tax Justice says that, even if Romney were to take away every loophole for the rich, the benefit of his lower tax rate would more than make up for the lost loopholes. On net, the CTJ estimates, people making $1 million or more would get an average tax break of $250,000 per year -- or the annual incomes of two middle-class families. Update: Or you could be Sheldon Adelson and get maybe $2 billion in tax cuts.
All of this comes at a time when the middle class is being squeezed by rising income inequality. A new survey by the Pew Research Center found that 32 percent of Americans now consider themselves "lower class," up from 25 percent four years ago. A new study by the liberal Economic Policy Institute found that the top 1 percent of American households are 288 times wealthier than the median American family. So far, it looks like Romney's tax plan, which will give wealthy households a giant tax cut while raising taxes for middle-class families, will keep this trend going.
Check out what the GOP doesn't want you to know about the deficit:
The deficit has ballooned not because of specific spending measures, but because of the recession. The deficit more than doubled between 2008 and 2009, as the economy was in free fall, since laid-off workers paid less in taxes and needed more benefits. The deficit then shrank in 2010 and 2011.
Republicans frequently have blamed the $787 billion stimulus for the national debt, but, when all government spending is taken into account, the stimulus frankly wasn't that big. In contrast, the U.S. will have spent nearly $4 trillion on wars in the Middle East by the time those conflicts end, according to a recent report by Brown University. The Bush tax cuts have cost nearly $1.3 trillion over 10 years.
When George W. Bush took office, the federal government was running a surplus of $86 billion. When he left, that had turned into a $642 billion deficit.
Last year's federal budget deficit was 12 percent lower than in 2009, according to the Office of Management and Budget.The deficit is projected to shrink even more over the next several years.
The interest rate on 10-year Treasury bonds is negative, according to the Treasury Department. Investors are even paying us for 30-year Treasury bonds, when adjusted for inflation.
Conservative commentators have been warning for years that investors will run away from Treasury bonds because of the national debt. So far it's not happening. Interest rates on Treasury bonds continue to hover at historic lows.
Republicans have blasted the Affordable Care Act as "budget-busting." But health care reform actually reduces the deficit, according to the Congressional Budget Office.
The U.S. government is borrowing much less from foreign countries than before the recession, according to government data cited by Paul Krugman. That is because the U.S. private sector is financing our bigger deficits.
Defense spending constituted 20 percent of federal spending last year, or $718 billion, according to the Center on Budget and Policy Priorities. This adds up to 41 percent of the world's defense spending, according to Bloomberg TV anchor Adam Johnson. Mitt Romney has vowed to not cut defense spending if elected president.
Health insurance, including Medicare and Medicaid, constituted 21 percent of federal spending last year. In contrast, education constituted 2 percent of federal spending. Meanwhile, Mitt Romney and Paul Ryan have promised not to change Medicare for Americans age 55 and older.
The federal budget deficit ballooned under Ronald Reagan, and that may be just the way Republicans like it. Some Republican thinkers have proposed "starving the beast": that is, cutting taxes in order to use larger deficits to justify spending cuts later. Since Republicans ultimately want lower taxes and a smaller government, what better way is there to cut spending than to make it look urgent and necessary?