Yesterday, Romney campaign adviser and AEI economist Kevin Hassett said that if it was impossible to make tax rate cuts revenue neutral without raising taxes on the middle class. President Romney would scale back the rate cuts. Since it is not, in fact, possible to enact Romney’s proposed rate cuts without raising taxes on the middle class that meant that President Romney would not be enacting candidate Romney’s proposed rate cuts.
But Sahil Kapur at TPM has the official statement from the Romney camp saying this is wrong:
“The governor’s plan calls for a 20% rate cut for all brackets, revenue neutrality, while ensuring that high-income earners continue to pay at least the same share of taxes,” a Romney spokesperson told TPM. “All of these goals are achievable, and the governor will work with Congress to enact tax reform that meets each of the goals he has proposed.”
Basically they’re saying that 2+2 = 5. It is simply not possible to cut tax rates across the board, eliminate deductions to maintain revenue neutrality, and leave the distributive structure of the tax code unchanged. Call it “Romney’s Trilemma.”
The Tax Policy Center has been doing the formal math, but intuitively it should be easy to understand. The different deductions have different distributive implications. If you eliminate a whole bunch of them, you’re going to skew the distributive impact of the tax code relative to the status quo. The good news is that you’ll raise a bunch of revenue to open up room for cuts in tax rates. But to maintain the status quo distributive impact, you’d have to fiddle with the rates very very carefully. A big 20 percent across the board cut isn’t going to work.