Obama’s ‘Trillion Dollar’ Tax-Cut Fraud
National Review Online
By Alan Reynolds
October 18, 2012
Two days before the last night’s presidential debate, the Washington Post’s frenetic blogger Ezra Klein wrotethat “Romney’s tax cuts cost $5 trillion over 10 years before his (unnamed) offsets. Extending the Bush tax cuts on income over $250,000 adds another $1 trillion. Then there’s the $2 trillion in new defense spending. So before Romney can cut the deficit by a dime, he has to come up with $8 trillion in offsets and savings for these plans.”
Obama echoed Klein’s remarks quite closely in the second debate, but the figures are pure fiction.
One part of the ruse, the $5 trillion tax cut, began by taking a crude one-year estimate from the Tax Policy Center (TPC) and erroneously multiplying it by ten. The original estimate, Klein explained, pretends that “in 2015, the Romney-Ryan rate reduction will reduce tax revenue by $480 billion compared to current policy. That’s the raw number, before you start arguing over behavioral responses or growth.” Yet we absolutely have to argue over immediate behavioral responses, reflected in what’s called “the elasticity of taxable income,” to come up with credible revenue estimates, even aside from economic growth.
Besides, changing the mix of spending priorities requires no extra revenue so long as Romney keeps his pledge (which Obama and Klein dutifully ignore) to get spending back to 20 percent of GDP by 2016. Compared with Obama’s 2013 budget plan, which keeps spending near 23 percent of GDP indefinitely, Romney is not proposing spending $2 trillion more, as Obama pretends, but $4.1 trillion less. Federal spending averaged 19.5 percent of GDP from 1995 to 2008, so 20 percent is scarcely unrealistic, even with a fifth of that going to defense.
When it comes to deductions, Romney’s plan to cap the dollar amount is a much bigger source of revenue than Obama’s (deductions average 23 percent of gross income), yet less discouraging at the margin, because earning more would not result in losing deductions.
The Obama-Klein team, feigning ignorance of Romney’s suggestion to cap deductions, speciously accuse him of forgoing revenue that, under Obama’s planned tax increases, comes from limiting deductions for those with high incomes. But Romney himself, like Warren Buffett, Bill Gates, and George Soros, stands to lose millions of dollars of charitable deductions each year from his own tax reform.
Romney’s tax reforms have a far better chance of generating enough revenue to cover spending that amounts to 20 percent of GDP than Obama’s punitive tax rates have of financing spending closer to 23 percent of GDP.
This is not least because Romney’s plans to reduce tax distortions and disincentives are enormously favorable to economic growth. Meanwhile, Obama’s tax plans are hostile to extra effort or investment if it results in any person or small business earning more than $250,000. Who, exactly, is going to have a hard time closing the deficit?
**In compliance with copyright laws, this version of the editorial is excerpted**