A fatal ambiguity has been hanging over Mitt Romney’s pledge to reduce income tax rates and pay for it by eliminating deductions without doing anything to increase the tax burden on the middle class. The problem is that this is mathematically impossible. To get the rate reductions Romney has promised, you either have to increase the deficit or have to increase the tax burden on the middle class. It just can’t be done otherwise.
So which did Romney have in mind? Well, now campaign adviser Kevin Hassett says neither, arguing that if Romney’s math doesn’t add up (and it doesn’t), he just won’t cut rates that much: “If you think the base-broadeners don’t add up, if you think he can’t get to 28 percent, then the right thing that would happen, as you know, if you’re going to have a revenue-neutral reform, is that they would have a different change in rates.”
In other words, we now have three different versions of the Romney tax proposal existing in quantum superposition. In Version 1, we do the full rate cuts and have no decrease in government revenues because we make up the difference with higher taxes on the middle class. This is the least politically palatable but the best long-term growth policy. In Version 2, we do what Ronald Reagan or George W. Bush would do and slash tax rates mostly without offsets. The result is a big increase in the budget deficit, which I think is the best short-term growth policy. In Hassett’s version, you stick to the promise of revenue neutrality and stick to the no-tax-hikes-on-the-middle-class pledge, and in that case you … just don’t do much of anything. Obviously not changing things is a pretty politically workable proposal. And since the Obama administration is proposing higher taxes than the status quo, there’s still disagreement between the candidates.
But these three Romney policies are each totally different! I don’t expect presidential candidates to tell us exactly what will happen if they win—Congress gets a say, and the future is always cloudy. But they should be able to give us some indication of the direction they intend to go.