JCT study pans Romney--Ryan tax plan

[oldfart]

The Romney campaign has pooh-poohed the Tax Policy Center analysis of the idea that rate reductions could be achieved in a revenue- neutral plan by curtailing unnamed deductions and other tax benefits. The Joint Committee on Taxation has now weighed in and their analysis is even grimmer. Their conclusion is that such a plan could only reduce rates (compared to the current law 15% to 39.6% for 2013 and later i.e. without the Bush rate cuts) by 4% as opposed to Romney's 20% goal. This would make the rate structure begin at 14.40% (from 15%) and end at 38.02% (instead of 39.6%).

Here are the assumptions and parameters of the model:
1. It is based on the standard economic model used by JCT and CBO to score tax and spending bills for effect on the deficit. This is more than a mere adding up of static numbers, it is the outcome of the same model to generate the figures used by both parties.

2. It assumes
----- the permanent repeal of the alternative minimum tax, PEP and Pease limitations,
----- the permanent elimination of all itemized deductions,
----- the permanent extension of current law provisions for the earned income tax credit and the child tax credit,
----- repeal of the interest exclusion on post-2012 state and municipal bonds,
----- taxing all dividends and capital gains at ordinary income rates,
----- reduce all marginal rates by 4%.

The model is relatively revenue-neutral over the period 2013--2022. Distributional effects are that the big winners would be taxpayers showing $50,000 or less of modified AGI (especially those with modified AGI between $10,000 and $ 20,000 who would see a tax reduction of 61.4%) and the big losers those whose modified AGI exceeds $100,000 (especially those whose modified AGI exceeds $1,000,000 who would see a tax increase of 7.1%). Those with modified AGI under $100,000 would see a reduction in taxes, with those with modified AGI seeing small increases (under 3%) except for millionaires.

If we take 2015 for a good out year to compare numbers, virtually all of the revenue increase is $215 billion from the elimination of all itemized deductions. Of this $68.4 billion is used to pay for repealing the AMT, $30.7 billion pays for repealing the PEP and Pease limitations, $71.5 to reduce marginal rates 4%, and $44.3 billion to extend the EITC and child credit. Net increase in revenue would be $4.1 billion.

So folks, it ain't gonna work. Lowering marginal rates anywhere near 20% will take a lot more than axing itemized deductions in their entirety.

 

[jwoodie]

Two problems with these "studies:"

1. Static analysis- assumes people do not change their financial decisions when the tax code changes.

2. They forget that the Constitution places legislative authority (including tax policy) in the hands of Congress.

Unlike Obama, whose budget plan was defeated 100-0 in the Senate, Romney would work with the Legislative Branch (as he did in MA) to develop pro-growth improvements to our current tax policy. One way to do this is to replace tax reducing incentives (i.e., deductions) with income increasing incentives (i.e., lower tax rates). Obviously, this can only be accomplished through cooperation with Congress as to the specific changes. Is this so hard to understand?

 

[oldfart]

Nice try but not anywhere close.

Two problems with these "studies:"

1. Static analysis- assumes people do not change their financial decisions when the tax code changes.

What other some whining blogger leads you to believe the JCT model is static? It's as dynamic as any model out there.

2. They forget that the Constitution places legislative authority (including tax policy) in the hands of Congress.

So? Congress created the JCT for one purpose, advising Congress on revenue effects of legislation. It is a creature of Congress.

"The Joint Committee Staff is responsible for providing the U.S. Congress with the budgetary effects of all tax legislation. The Congressional Budget Act of 1974 stipulates that revenue estimates provided by the Joint Committee Staff will be the official estimates for all tax legislation considered by the Congress. In order to fulfill its objective of providing budgetary effects of revenue legislation, the Joint Committee Staff employs Ph.D. economists, attorneys, and accountants (see about us page). The objective of the estimating process is to produce accurate, consistent, fair, and impartial estimates that can be relied upon by Members of Congress in making legislative decisions.

Over time, the Joint Committee Staff has published documents that discuss in detail the methodologies, data, and procedures that are used to produce revenue estimates. These pamphlets are listed below."

Unlike Obama, whose budget plan was defeated 100-0 in the Senate, Romney would work with the Legislative Branch (as he did in MA) to develop pro-growth improvements to our current tax policy. One way to do this is to replace tax reducing incentives (i.e., deductions) with income increasing incentives (i.e., lower tax rates). Obviously, this can only be accomplished through cooperation with Congress as to the specific changes. Is this so hard to understand?

Not hard to understand at all. You understand that by law any such legislation must be submited to the JCT for scoring for revenue effects before it is voted on?

Any thing else you need to learn about the budget process?