Snap Fact #268 - President Obama Has the Only Tax Plan That Will Help the Middle Class!

Post date: Aug 06, 2012 11:47:50 PM

Snap Fact #268

President Obama Has the Only Tax Plan That Will Help the Middle Class!

President Obama has fought for fairness in taxation and Deficit reduction. He has emphasized the need for a balanced approach -- a revenue-neutral plan. That means looking for avenues that would add revenue while closing loopholes that currently add to the Deficit, while making common sense spending cuts. The President has advocated that the wealthy pay their fair share of taxes, contributing an equal share of the tax burden. In the recent past the Middle Class & the Poor alone shoulder the tax burden while the rich have gotten all the breaks. 

Rather than extending the Bush tax cuts for everyone that would add $86 billion to the Deficit, President Obama has urged Congress to pass a tax cut for individuals earning $250,000 or less. Those earning above that amount would return to the equivalent of the higher Clinton era tax rates that existed prior to the Bush administration’s tax cuts. President Obama’s plan would work to preserve Medicare and Social Security and the "Safety Net" for the poor.

Presumptive Presidential candidate Mitt Romney has adopted Paul Ryan’s tax plan which would not only keep current Bush-era tax levels for all earners, it would cut marginal tax rates across the board 20%; lowering the corporate rate to 25% from the current 35%; eliminating taxes on investments for incomes under $200,000; and repealing the estate tax – all producing huge additional windfalls for the already rich. On top of this entitlement programs would be cut to pay for this already unfair redistribution of income from the middle and bottom to the top. 

However, according to a new Study by the Brookings Institution and the non-partisan Tax Policy Center, Romney's tax plan would in reality decrease tax collections by $360 billion in 2015. The Study concluded that Mr. Romney’s plan would reduce taxes significantly for high-income earners (by 6.9% or $146,000 for households making more than $1 million), and increase federal deficits by $180 billion in 2015 compared to current tax levels. Under Romney's plan, a millionaire would get an $87,000 tax cut, the study says. But for 95 percent of the population, taxes would go up by about 1.2 percent, an average of $500 a year. Maintaining revenue neutrality mathematically necessitates a shift in the tax burden of at least $86 billion away from high-income taxpayers onto lower-and middle-income taxpayers. This is true even under the assumption that the maximum amount of revenue possible is obtained from cutting tax expenditures for high-income households

The Study gives the lie to Mr. Romney’s often-repeated claim that he wants to focus new tax breaks on middle-class taxpayers, not the well-to-do. The Tax Policy Center ran the numbers and figured out that no matter which numbers Romney plugs in (even magical, supply-side, dynamic scoring numbers), there aren't enough loopholes to nearly pay for the tax cuts. Romney's tax plan would have to generate an equivalent amount of revenue by slashing tax breaks for mortgage interest, employer-provided health care, education, medical expenses, state and local taxes, and child care — all breaks that benefit the middle class. 

The result would be what the New York Times’ Paul Krugman calls “Dooh Nibor” (or reverse Robin Hood) economics: Rob from the middle class to pay the wealthy. The tax cuts Romney is offering to the rich are simply larger than the size of the (non-investment) deductions and loopholes that exist for the rich. That’s why it’s “mathematically impossible” for Romney’s plan to produce anything but a tax increase on the middle class.

Amazingly, even if they accept Romney Economic Advisor Greg Mankiw's estimates of the effect of rate cuts on growth (which assumes no increase in the deficit even in the short run). They still conclude that a Romney claim must be false.

Nevertheless, even if one were to use the model from Mankiw and Weinzierl (2006) and assume that after five years 15 percent of the $360 billion tax cut is paid for through higher economic growth, the available tax expenditures would still need to be cut by 56 percent; on net lower-and middle-income taxpayers would still need to pay higher taxes – check mate on Romney’s game!

In an all too familiar hypocritical twist, the Romney campaign has tried to cast doubt on the Study and the credibility of BrookingsInstitution and the non-partisan Tax Policy Center, when in fact Romney had previously used the analysis of the latter to discredit his rivals during the recent primary season.

The bottom line: Under Romney's tax plan the Middle Class and the Poor would end up shouldering America's entire tax burden, while the wealthy got considerably wealthier. There is nothing "trickle down" about that.