Wednesday, August 8, 2012

Romney Economic Team Disgraces Itself

The Brookings/Tax Policy Center study released a few days ago showed that Mitt Romney's taxation plans to :

  • Lower tax rates by 20%
  • Offset rate reduction by eliminating tax expenditures (exemptions, deductions & credits)
  • But excluding expenditures dealing with investment income & savings
  • "[M]aintain the current level of progressivity by making sure that the top one percent pays no less in taxes and everyone else pays no more."

are impossible to achieve.

Breaking down tax expenditures by social class, Mike Konczal shows that of those aimed at the working poor, 60% go to the bottom 40%; of those aimed at the middle class and upper middle class, +50% go to those between 80th & 99th percentile; and of those aimed at the top 1%, over 50% go to the top 0.1%, while 75% go to the top 1%.

Romney's problem is that he wants to lower taxes on each group and offset the reduction by eliminating its tax expenditures--except for those related to capital gains, dividends and savings, which go almost entirely to the 1%. Ergo, he has to make up the gap by cutting deeper into tax expenditures for the poor and working class. The problem is that there aren't enough in tax expenditures to the latter two groups to make up the gap.

The Romney campaign responded with a white paper put together by its economic team: economists Kevin Hassett, Glenn Hubbard, Gregory Mankiw, and John Taylor,  "The Romney Program for Economic Recovery, Growth, and Jobs."

The white paper claims that Obama's economic stimulus plan was ineffective, and that "Uncertainty over policy – particularly over tax and regulatory policy – limited both the recovery and job creation."

Unfortunately Romney's economic team cherry-picked the studies it used. Out of 15 studies of the stimulus, 13 found it to be at least partly effective. Of the two remaining, one was by John Taylor, a member of Romney's economic team, and showed not that the stimulus didn't work, but that stimulus funds were diverted by states for other purposes. The other study focused on the "cash for clunkers" program, not the stimulus as a whole.

The white paper's claims that Obama tax and regulatory policies suppressed the recovery by creating uncertainty relies on circular reasoning and astonishingly shoddy methodology. The white paper creates an uncertainty index consisting of a news search, disagreement among economic forecasters, and "the number of federal tax code provisions set to expire in future years."

The latter essentially blames Obama for uncertainty created by the fact that the Bush tax cuts, constructed by (among others) Romney economic team member Glenn Hubbard, were designed to be temporary, with an expiration date coinciding with Obama's election.

The second part involves creation of a news search index constructed so as to function as a sort of echo chamber for conservative talking points, much like Fox News. As Mike Konzcal notes:
Spokespeople for the conservative movement tell reporters that President Obama's policies are causing economic uncertainty. Reporters write it down and publish it. Economic researchers search newspapers for stories about economic uncertainty and policy, and create a policy uncertainty index out of those talking points. The conservative movement then turns around and points to the policy uncertainty index as scientifically justifying their initial talking points about Obama and uncertainty as well as the need to implement their policies. Taa-daa! Magic.
Lastly, the news search is constructed such that any story referencing the search terms will yield a positive result, whether the story reflects support for or opposition to the idea that uncertainty dampened the recovery, or whether the uncertainty in question had to do with supply or demand.

So aside from the fact that the white paper (1) cherry picks studies to give a misleading picture of the stimulus; (2) tries to hold Obama responsible for the temporary nature of a GOP-written tax cut plan; (3) creates a news search index that pushes GOP talking points and falsely inflates its results, it's all good.

And isn't this the perfect defense for a candidate who (a) tries to deny paternity of Obamacare; (b) has to hide from his record at Bain Capital; (c) had his gubernatorial staff destroy all e-mails prior to leaving the Massachusetts state house; (d) won't release his taxes; and most importantly, (e) won't tell the American public what he'll cut or by how much in order to pay for enormous tax cuts for the wealthiest?