The most important issue in this year's Presidential election is the struggling economy.
Both candidates have presented their basic plans to address this.
Republican nominee Mitt Romney has not shared many specifics of his plan, but the basic outline has emerged: Romney wants to cut taxes radically across the board.
President Barack Obama, meanwhile, wants to extend the so-called "Bush tax cuts" for most Americans while allowing taxes to rise for the highest wage-earners.
Romney argues that his plan will stimulate the economy by putting more cash in the hands of consumers, investors, and entrepreneurs.
Obama argues that his plan will do the same thing but won't increase the deficit so much.
One of the big mysteries of Romney's plan, meanwhile, is how he will manage to cut tax rates across the board without radically increasing the deficit. The current plan outlined on the candidate's web site, MittRomney.com, suggests that he has abandoned the idea of making his cuts "revenue neutral." But Romney economic advisor Glenn Hubbard, who joined The Daily Ticker this morning from the Republican National Convention, says this isn't the case.
Hubbard says Romney is still committed to making his tax cuts "revenue neutral"--in other words, not leading to an increase in the deficit.
When I asked how this was possible, given the magnitude of the cuts (20% across the board on personal income taxes, along with a 10-point cut to corporate income taxes), Hubbard explained that the cuts would be offset by:
- Stronger economic growth, and
- "Broadening the base" of taxpayers (in other words, having poor and lower-middle-income Americans pay income tax)
In the past, Romney has also promised to increase revenue by eliminating some loopholes and deductions. Romney has never been specific about which loopholes he would eliminate, and Hubbard did not provide any specifics.
Earlier this year, the Tax Policy Center concluded that it would be impossible for Romney to cut income taxes across the board and make the cuts "revenue neutral" without also effectively increasing taxes on the lowest-income Americans (and that was when the Romney plan called for merely maintaining current tax rates, not cutting them). The Romney campaign dismissed this conclusion as factually wrong and "partisan."
Professor Hubbard maintains that Romney's tax plan will not only accelerate economic growth--which it almost certainly would--but will do it without increasing the deficit and without changing the ratio of total taxes paid by any income group.
Using back-of-the-envelope math, this seems very hard to believe.
So, hopefully, Professor Hubbard and Governor Romney will soon share the detailed assumptions underlying the plan.
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