Clearing Up the Mathematically Impossible

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Note: Guest blogger Kyle Buckley, a NCPA research associate, gives his thoughts on the Vice Presidential debate.

The Vice Presidential debates last night were painful to watch, and the aftermath isn’t any more reassuring. Talking heads have focused relentlessly on

body language and what should have been said, while fact checkers cherry pick data almost as impressively as the candidates themselves.

It’s disconcerting, but since taxes are sort of our thing, let’s take a look at Biden’s statement that it is “not mathematically possible” to cut taxes and see federal revenue growth.

So what exactly is the Romney-Ryan tax plan? Here are a few of the key points:

  • Lower the corporate tax rate (which by the way, something that President Obama has also proposed)
  • Decrease individual income tax rates by 20 percent
  • Eliminate taxes on capital gains, dividends, and interest for any taxpayer with an Adjusted Gross Income (AGI) under $200,000.
  • Pursue a simpler tax structure with a broader base.

Ryan seems to be equivocating on which “important preferences for middle class taxpayers” would be preserved, making it extremely difficult to estimate the viability his proposed plan to broaden the base and lower the tax rates. So instead let’s focus on the idea of growing the federal revenue streams while cutting taxes.

A historical example of this is the story of the capital gains tax. In 1997, Congress and President Clinton agreed to lower the rate from 28 percent to 20 percent, retroactive May 1997. As WSJ writer Steven Moore points out in an NCPA study, capital gains tax revenue increased from $85 billion to $100 billion from 1996 to 1997. Of course, this was a period of significant stock market gains. But even during the tumultuous decade of 2000, President Bush’s capital gains tax reduction doubles capital gains tax revenue from $56 billion in 2003 to $110 billion in 2006.

Biden references the Tax Policy Center (TPC) in his argument that Romney is raising taxes on the middle class, and cannot possibly be revenue-neutral. The TPC report suggests that Romney’s

plan would result in a 24 percent cut in projected revenue by 2015 ($900 billion). Unfortunately, the TPC looks at the Romney plan in a vacuum, neglecting the impact of tax reform on the economy as a whole. The American Enterprise Institute and Heritage both acknowledge that the TPC doesn’t account for GDP growth as a result of reforms. This is important. Gerald W. Scully, a former NCPA senior fellow, notes that as we move closer to the growth maximizing tax rate (as Romney plans to do), GDP and Federal revenue increases, while income inequality decreases.

Having been in the Senate since 1972 and experiencing all manner of tax policy (from both sides of the aisle), Senator Biden should know better.

 

Comments (8)

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  1. Arnie Ree says:

    Nice piece. Well thought out and explained.

  2. Joe Barnett says:

    I’m surprised that the Romney-Ryan campaign does not talk more about the idea of capping deductions/tax credits and letting individual taxpayers choose which tax preferences they will take. The amount could be adjusted to whatever level is needed to balance the budget (eventually).

  3. Kyle says:

    That’s an interesting idea, Joe. Perhaps a little too fiscally responsible for America’s burgeoning sense of entitlement. We would need to add some sort of regressive deduction system, to really stick it to those one percenters. Otherwise, the backlash would be outrageous. Hordes of angry tax payers storming D.C.. Copies of Turbo Tax in one hand, pitchforks in the other, demanding the immediate surrender of their exemptions.

  4. Cheyenne says:

    It would be remniscient of the time that a hoard of senior citizens chased Dan Rostenkowski down the street and surrounded his car over oppposition to the Catastrophic Coverage Act.

  5. seyyed says:

    great post.

  6. Robert says:

    Good job, Kyle!

  7. marcie v. says:

    I think you underestimated it when you said the debates were painful to watch, the lack of professionalism and abundance of drama really makes you second guess the abilities of both parties to govern our nation. I think these men were too busy gossiping to come up with feasible plans, Romney-Ryan seem to be shooting a little high while Obama-Biden aren’t offering much of anything .. at least Biden is holding true to the last 4 year’s of office by focusing on the convenient data in lieu of risking the use of real facts. Awesome piece Kyle!

  8. Terri says:

    Nicely done. If the candidates would take this approach to explain the results and consequences, the average person would have a better understanding of the candidates agenda.

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