Romney's Incoherent Tax Plan Is Giving Me a HeadacheS

So amid the barrage of very, very substantive numbers and equations we heard last night was this: Mitt Romney wants to cut marginal tax rates by 20% across the board. Most people agree that this action, taken on its own, would reduce federal receipts by $4.8 trillion over ten years. But! Romney says he will make up for that lost revenue by eliminating loopholes to the tune of $4.8 trillion over the next decade, so there won't really be a tax cut. Which raises the question: Why the fuck are you cutting taxes, then?

Astonishingly and disappointingly, neither Jim Lehrer nor Barack Obama saw fit to ask that basic question of Romney last night. Even more astonishingly, he asked it of himself. But his answer made no sense:

I want to bring down rates. I want to bring down the rates down, at the same time lower deductions and exemptions and credits and so forth so we keep getting the revenue we need.

And you think, well, then why lower the rates? And the reason is because small business pays that individual rate. Fifty-four percent of America's workers work in businesses that are taxed not at the corporate tax rate but at the individual tax rate. And if we lower that rate, they will be able to hire more people.

To repeat: I want to lower taxes. But I don't want to reduce revenue or cut spending, so I will effectively raise taxes—through eliminating loopholes—by an equivalent amount. Why? Because I want people to pay lower taxes.

Romney is refusing to specify which loopholes he will end, though he said he may institute an overall cap on deductions, meaning that people who itemize their deductions would be able to make use of all the current ones—mortgage interest, charitable donations, etc.—but would max out at some point. This, of course, would have the effect of raising their taxes, something Mitt Romney has repeatedly pledged not to do—"You raise taxes and you kill jobs," he said last night.

Whatever his plan amounts to, Romney keeps saying that there is a class of people—small business owners—who should be paying less in taxes than they are now. He wants to deliver that tax relief by a large-scale, across-the-board cut that would affect everyone, whether they report business income or not. And then he'd recover the lost revenue through closing loopholes, though on whom he won't say. Obama's (lamely, limply delivered) response was that there's no way to institute that tax cut without either massive spending cuts or middle-class tax increases.

Romney can get away with dodging that by saying "your study is wrong, mine is right." He can claim that he won't cut spending massively or raise taxes on the middle class. But what he can't dodge is the basic math. If you insist on keeping revenues the same, then screwing around with who pays what taxes is like pressing on a water balloon—lower them somewhere, they go up somewhere else. If he really intends for small business owners to pay lower rates, then he will be forced to close loopholes that are only employed by non-small-business owners, which means that the effects of the loophole closings will be unevenly distributed throughout the tax base, which means someone else will pay more taxes than they are now. And Romney has been very clear that taxes going up—anywhere, on anyone—would be disastrous.

It sounds like Romney thinks that "raising taxes" means raising marginal rates, and that eliminating deductions doesn't really count. Indeed, not even anti-tax jihadist Grover Norquist views the elimination of loopholes and deductions as tax increases, as long as they are matched "dollar for dollar" with rate cuts, which is precisely what Romney is doing. But that's an absurd way of looking at paying taxes. If you deducted the interest on your home mortgage from your taxable income last year, and next year you can't—that's a tax increase. It doesn't matter to you if you're paying a slightly lower marginal rate. The effective rate—your bill as a ratio of your adjusted gross income—is going to go up.

Just ask Mitt Romney. In his 2011 tax return, he deliberately declined to fully take advantage of the charitable giving deduction. Why? So that his effective tax rate—the only thing the reporters and political operatives scrutinizing his returns cared about—would stay above 13%. It's weird that Romney was so concerned with stage-managing his own effective tax rate but doesn't seem to care about it when it comes to his tax plan.

[Photo via Getty]