Continued Distortions of Romney’s Tax Plan

The Wall Street Journal  hones in on the big assumption in the Tax Policy Center study that’s driven much of the media coverage and Democratic attacks against Mitt Romney’s tax plan:

The study’s biggest distortion is its raw assertion that Mr. Romney would refuse to close certain loopholes. In the appendix, the Tax Policy Center lists, among others, two giant tax deductions that it says would go untouched: the exclusion of interest on tax-exempt municipal bonds, and the exclusion of interest on life insurance savings. The study claims that Mr. Romney won’t close these because they are incentives for saving and investment.

At AEI, Matt Jensen offers a critique of the TPC study, and finds that this one tweak would demolish TPC’s conclusion that the plan would shift the tax burden to the middle class:

The first aspect that stands out is that Governor Romney has yet to detail what tax expenditures he’d repeal, but TPC assumes that many items are either “on the table” or “off the table.” While some of these assumptions make a lot of sense, others make less.

For example, a couple of items that TPC assumes are off the table are the exclusion of interest on tax exempt bonds and the exclusion of interest on life insurance savings. While Governor Romney has professed a desire to keep rates on savings and investment low, maintaining these exclusions is not necessarily what he meant. In fact, both of these exclusions largely benefit the wealthy, and, according to the Treasury Department, added together their repeal would net upwards of $90 billion that could be redistributed to lower-income individuals. That would go a long way towards balancing out the supposed $86 billion windfall for the rich and tax hike on the middle class and poor, and it could make the impossible suddenly possible.

TPC has acknowledged that there are alternative scenarios that aren’t covered in its initial study. Unfortunately, rather than serve as a theoretical exercise, the TPC study has been appropriated as a political attack by the Obama campaign. Romney is now being accused of supposedly proposing tax hikes on the middle class, when there are scenarios in which his tax plan could work without increasing the middle class tax burden. While the Romney campaign could help resolve this by actually releasing more details on his tax plan, TPC could also avoid being used as a partisan bludgeon by analyzing multiple possible scenarios.