Tax Cut Magic

You’ve probably heard that the Republicans have “conceded ground” because they’ve opened the door to revenue, but don’t get too excited.

What the Republicans have proposed is essentially the same thing Mitt Romney proposed. That is cutting enough loopholes and deductions to somehow pay for enormous tax cuts that would accompany it.

Republicans have said that the $800 billion in new revenues would come from eliminating loopholes and deductions in a way that only targets those over $250,000. That way, Republicans can argue that their plan doesn’t hit the middle class, only the rich.

The problem, though, is that you’d have to eliminate virtually every significant loophole and deduction that benefits the wealthy to make this possible, according to Roberton Williams, a senior fellow at the nonpartisan Tax Policy Center. Worse, if you also want to lower tax rates, as Republicans say they do, it would become even harder.

“If the tax rates are going to be lowered significantly, it’s harder and harder to hit that revenue target,” Williams told me, adding that until Republicans specified what sort of rate cuts they have in mind, it’s impossible to say whether this is even doable.

We’ve seen this movie before, except when Mitt Romney proposed it the Joint Committee on Taxation concluded that ending virtually every special deduction would only pay for a 4 percent tax cut.

When confronted with this reality the Republican rebuttal is that the explosion of growth that would result from cutting taxes would make up for their enormous cost. In other words — they’re relying on Tax Cut Magic.

Even the conservative Heritage Institute threw shade on John Boehner’s laughable “counter-offer” today by calling it a “dud.”

Despite these encouraging notes, the Republican counteroffer, to the extent it can be interpreted from the hazy details now available, is a dud. It is utterly unacceptable. It is bad policy, bad economics, and, if we may say so, highly questionable as a negotiating tactic.

Bad policy and bad economics.

More from the NYTimes

If Mr. Boehner had used a calculator, for example, he would have discovered it is impossible to produce $800 billion in revenue from eliminating deductions without severely curtailing the deduction for charitable donations, which is vital to the nonprofit sector. Doing so without limiting the charitable deduction would inevitably raise taxes on the middle class, as nonpartisan analysts have concluded, and would have a much greater effect on the upper middle class than on the very rich.

The only way to produce the necessary revenue is to combine some limits on deductions with an end to the Bush tax cuts on the rich, and Mr. Obama, fortunately, has been adamant he will not consider any plan that does not do so.

The Republicans’ counter-offer, if you can even call it that, is vague and lacking in detail because to offer that detail would open it up to more scrutiny. Scrutiny that more than likely would reveal that their math doesn’t add up. Just as it didn’t add up during the 2012 campaign or the decade that preceded it.

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  • http://www.politicalruminations.com/ nicole

    The WH blog also addressed this issue.

    “Limiting Tax Deductions: The Reality of the Math”
    http://www.whitehouse.gov/blog/2012/11/29/limiting-tax-deductions-reality-math

  • muselet

    Steve Benen said yesterday:

    To call this a “counteroffer” is to strip the word of meaning. Under the GOP plan, Republicans get the more than $1 trillion in spending cuts Obama already gave them; Republicans get the entitlement cuts they want; Republicans get hundreds of billions of dollars in additional cuts to programs they haven’t identified; and Republicans get all of the Bush-era tax rates they’ve prioritized.

    This isn’t a “counteroffer”; it’s a Christmas wish list written by kids without access to calculators.

    I think Benen’s being far too kind.

    –alopecia

    • D_C_Wilson

      They have calculators. They know that if the “explosion” of growth they’re predicting happens (it won’t), they can claim that voodoo economics has been finally vindicated. And if it caused the deficit to explode instead (which it would), they could blame it on Obama. Instant 2016 campaign issue.

  • D_C_Wilson

    Republicans are hoping the revenue fairy will stop by the Capitol.