President Obama has seized on a new study by the Brookings Institution and Tax Policy Center to claim that Mitt Romney plans to increase taxes on the middle class to pay for tax cuts for wealthier Americans. "In order to afford just one $250,000 tax cut for somebody like Mr. Romney, 125 families like yours would have to pay another $2,000 in taxes each and every year," Obama told the audience at a campaign event in Mansfield, Ohio, on Wednesday. It subsequently became fodder for Obama's latest attack ad. But the reality is a bit more complicated than Obama's presentation.
As a reminder, Romney's tax plan calls for a 20 percent across-the-board reduction in federal income tax rates, the elimination of the inheritance tax and a repeal of the alternative minimum tax. He said his plan would be revenue-neutral, meaning that whatever money the U.S. Treasury would lose as a result of reducing tax rates would be recouped by economic growth and the elimination of various loopholes and deductions. Romney has not specified which deductions he would reduce or eliminate. In the absence of details, researchers at the center-left Brookings and the liberal Tax Policy Center conducted what they described as an "exercise" about the deductions and loopholes Romney would have get rid of to make his plan revenue-neutral.
At the outset of the report, the authors caution, "We do not score Governor Romney's plan directly, as certain components of his plan are not specified in sufficient detail, nor do we make assumptions regarding what those components might be." Yet that didn't stop Obama from declaring in Ohio, "Just today, an independent, nonpartisan organization ran all the numbers on Gov. Romney's plan."
Obama touted the fact that one of the authors of the study "used to work for Bush." This is a reference to William Gale, who served on the Council of Economic Advisers under President George H.W. Bush, best remembered on domestic policy for violating a campaign pledge not to raise taxes. This year, Gale has written commentary pieces arguing for higher taxes and more stimulus spending. Another author, Adam Looney, served on Obama's own Council of Economic Advisers.
As part of the "exercise," the authors found that bringing down tax rates by the amount Romney calls for would reduce revenue by $360 billion. If this were offset by eliminating deductions, the authors found that those earning more than $200,000 would still get a net tax cut, but those earning less would suffer an effective tax increase of $500, on average. Those with children, who benefit disproportionately from certain deductions, would see their taxes go up $2,000, according to the study.
But James Pethokoukis, of the American Enterprise Institute, raised a number of issues with the study. For one, it disregards the potential economic benefits that could come from another component of Romney's plan, which would cut the corporate tax rate to the more globally competitive 25 percent, spurring more businesses to operate (and pay taxes) in the United States. In the end, the findings are of limited use in evaluating Romney's tax plan given that the actual details could differ once it's fleshed out.
Though we would encourage Romney to provide more specifics about his tax plan, Obama shouldn't have carte blanche to make up details and attack those.