In our discussion about the presidential candidates’ approaches to taxes, we had two economists discuss a high-profile study from the non-partisan Tax Policy Center that looked at Governor Romney’s proposed cuts in marginal income tax rates (as well as eliminating some investment income taxes, the alternative minimum tax and others) and found it could potentially cost about $5 trillion over 10 years. That figure was also a point of contention between President Obama and Romney during the first presidential debate this week.
During our own tax debate (with the transcript below), one of our guests, Douglas Holtz-Eakin, argued that the President and Democrats were mischaracterizing the $5 trillion figure since they were ignoring what Mr. Holtz-Eakin said would be the collection of more revenues from the end of the Bush-era tax cuts.
But today, Mr. Holtz-Eakin contacted us to say that he was wrong about that point on the broadcast — namely that the $5 trillion figure cited in the TaxPolicyCenter study does indeed come from an analysis of Governor Romney’s proposal to cut marginal tax rates, but the study does not presume or suggest the Bush-era tax cuts will expire. (For the record, Romney has never indicated that he would end the Bush-era tax cuts. In fact, he has said he would extend all of those cuts.)
Here is what Mr. Holtz-Eakin wrote to the NewsHour below:
“The TaxPolicyCenter analysis does NOT assume that taxes first go up before the Romney tax rates are imposed. Instead the cut takes place from current levels. This mistake is solely my own and I apologize. The remainder of my comments regarding tax plans that do and do not accord with the Romney campaign’s objectives are not affected by this error.”
JEFFREY BROWN: And we hone in now on some of the claims and counterclaims over taxes and the deficit. And for that, we have asked back two economists who’ve joined us several times this election season.
Jared Bernstein served as chief economist and adviser to Vice President Biden from 2009 to 2011. He’s now a senior fellow at the Center on Budget and Policy Priorities.
Douglas Holtz-Eakin is a former director of the Congressional Budget Office. He was chief economics adviser to John McCain’s presidential campaign and is now president of the American Action Forum, a policy think tank. Neither holds an official position with the current campaigns.
First of all, welcome back.
JARED BERNSTEIN, former chief economist to Vice President Joe Biden: Thank you.
DOUGLAS HOLTZ-EAKIN, former Congressional Budget Office director: Thank you.
JEFFREY BROWN: OK. Jared, I want to start with the $5 trillion number, because there’s a dispute over it, where it came from. What is the president referring to?
JARED BERNSTEIN: Right. Mitt Romney has proposed to cut taxes across the board by 20 percent — cut tax rates — I should be precise about that, because it matters.
You lose $5 trillion in revenue over 10 years if you cut tax rates by 20 percent across the board. That’s the calculation of a nonpartisan group widely agreed to be accurate, the Tax Policy Center.
Now, here’s where things get complicated, because what the governor is…
JEFFREY BROWN: You’re going there right away, aren’t you?
JARED BERNSTEIN: Well, look…
JEFFREY BROWN: Go ahead.
JARED BERNSTEIN: It’s like we’re up there on the stage last night.
What the governor says he will do is fill that $5 trillion hole by getting rid of a bunch of deductions and loopholes.
And so he will offset the revenue loss with closing of deductions and loopholes. And what — the president made two points last night, and I thought they were good points.
First, he said there’s actually not enough deductions and loopholes, particularly for high-income people, to offset the revenue loss. So that’s when they said the math doesn’t work. There’s just not enough dollars in those deduction loophole closures to offset the revenues.
And the second one is, the governor’s not said which deductions and loopholes he would close. And that’s pretty egregious because we’re really talking about $5 trillion over 10 years.
JEFFREY BROWN: All right, well, Doug, let me turn to you, because Mitt Romney responded — we heard — I’m not looking for a $5 trillion tax cut.
So what is he looking at? How does he see it?
DOUGLAS HOLTZ-EAKIN: Well, to get to $5 trillion, the first thing you have to do is let all of the 2001-2003 tax laws sunset, go away. That’s a $2.7 trillion tax increase, most of which the president wouldn’t support.
Then you have to cut by $5 trillion. So compared to where we are now, it’s really a much smaller reduction in tax revenue, which makes it much easier to fill the revenue hole. And we now have five studies, one from Martin Feldstein at Harvard, one from Harvey Rosen at Princeton, one from the Tax Foundation, one from the American Enterprise Institute.
We have studies that show there are plans that meet the governor’s goal, cut rates 20 percent across the board, don’t lose revenue, and make sure the rich pay their fair share of taxes. So it can be done.
JEFFREY BROWN: Well, but as to filling the hole that we’re talking about, those studies…
DOUGLAS HOLTZ-EAKIN: They fill the hole.
JEFFREY BROWN: They fill the hole, but it depends on where you’re at, right, in terms of your income.
DOUGLAS HOLTZ-EAKIN: So I think the key is there are tax plans that can fill that hole and not raise taxes on the middle class.
Jared could write a tax plan that fills that hole and does raise taxes on the middle class. And those are the ones that Democrats are referring to.
JEFFREY BROWN: Go ahead.
JARED BERNSTEIN: No.
First of all, some of what Doug just said confused me even more about this, because Gov. Romney has not said that he wants the Bush tax cuts to expire. To the contrary, he wants to extend them. And that’s before we’re talking about this new 20 percent across-the-board tax cut.
So he actually has two holes to fill relative to what Doug just told you. Secondly…
JEFFREY BROWN: Stop there. Answer that one.
DOUGLAS HOLTZ-EAKIN: Wrong. It’s just wrong.
There’s taxes now, cut 20 percent, that’s what the governor is proposing. Now, the question is, how big is that hole? Well, it’s a $2.3 trillion hole.
JEFFREY BROWN: But he has not said about the Bush tax cuts.
JARED BERNSTEIN: Are you saying that the governor doesn’t want to extend the Bush tax cuts?
DOUGLAS HOLTZ-EAKIN: I have no idea. It doesn’t matter.
JARED BERNSTEIN: He has said many times he does.
DOUGLAS HOLTZ-EAKIN: The question is, what is the difference between where we are now and cutting by 20 percent? And that answer is $2.3 trillion.
JARED BERNSTEIN: I think that’s…
JARED BERNSTEIN: I think that’s obfuscation.
DOUGLAS HOLTZ-EAKIN: No, this is the Tax Policy Center.
The only way you get $5 trillion is let the rates go up and then go all the way back down. That’s just the math.
JARED BERNSTEIN: Now, on the studies, OK, on the studies, what the studies basically say is the only way Gov. Romney can fill the hole — it’s a $5 trillion hole from the rate cut and another $4.5 trillion from extending the Bush tax cuts — is by raising taxes on people below $200,000, starting at around $100,000. That’s Marty Feldstein’s idea.
Or to imagine that, because of these tax cuts, you’re going to get large growth rates. Now, that’s supply-side fairy dust, and it has served us very poorly in the past…
JEFFREY BROWN: So, give us the specifics you see for making what Gov. Romney says a deficit-neutral tax cut plan, because is it taxes or is it what specific cuts that might be possible? Deductions? What would happen?
DOUGLAS HOLTZ-EAKIN: The cuts are the rates. And that’s the…
JEFFREY BROWN: I’m sorry. I meant spending. I meant spending cuts. That’s what I meant.
DOUGLAS HOLTZ-EAKIN: He’s not — looking at the spending side. He’s saying let’s look at things like mortgage interest deduction, exclusion of the health care, all of the personal exemptions itemized deductions that are in the tax code right now and ask the question, can we eliminate in part or in whole some of those and make this revenue-neutral?
The answer to that is unquestionably yes, because we have seen the Bowles-Simpson commission do it. We have seen the variety of these studies. Jared might not like them, but they could do it. The question is, how would the government do it? I don’t know the answer to that, to be honest. And I think that’s a fair point.
JEFFREY BROWN: That he hasn’t been specific enough about which deductions might be…
DOUGLAS HOLTZ-EAKIN: We know that Jared can write a plan that raises taxes on the middle class. We know I can write a plan that it doesn’t. And the question is, what plan will we get?
JARED BERNSTEIN: It’s unquestionably the case, as lots of independent analysts have found this, that if you’re going to fill that hole, you can’t do it just by canceling those deductions and closing those loopholes on the upper-income folks.
You have to move down below, say $200,000. You have to get to $100,000, maybe lower than that. And by that point, you’re hitting people who many of us would probably view as middle class, A.
B., I really do believe that the governor should specify, I’m going to close the mortgage interest deduction. I’m going to get rid of the health care exclusion, if that’s part of his plan. I think to leave that out strikes me as really quite confusing and misleading.
JEFFREY BROWN: On the other hand, the president hasn’t been specific about many of these things, too.
JARED BERNSTEIN: Right. And he should as well.
JEFFREY BROWN: He should as well?
JARED BERNSTEIN: Absolutely.
JEFFREY BROWN: And when he says that he would only cut on the upper income, those studies suggest that that’s not enough to fill the gap either.
DOUGLAS HOLTZ-EAKIN: On specificity, for example, the president said I’m going to cut the corporate rate to 28 percent, but we have no clue how he’s going to make that revenue-neutral.
And the reason he hasn’t specified those details is he because it will make it harder to get through Congress.
The reason Gov. Romney has said that he doesn’t really want to lay out all the detail is, he actually wants to accomplish this and that he needs to work with Congress in order to get it passed. And I have a lot of sympathy for that point of view.
Tax reform is really hard. The tax code is going to be 100 years old next year. And we have had less than a handful of comprehensive reforms. As a going-in proposition, it’s hard to do. And you would stack the deck for success…
JARED BERNSTEIN: I have sympathy — I have sympathy for what Doug said as well.
However, here’s the thing. There is — a lot — I watched the debate last night with a bunch of students out at Notre Dame University, and there was a ton of head-scratching going on. I want to quote something that the governor said.
JEFFREY BROWN: It’s a good school, so there should be smart students. Right?
JARED BERNSTEIN: And these are smart students.
He said — quote — “I will not reduce the taxes paid by high-income Americans.” “I will not reduce the taxes paid by high income Americans.”
Now, this is a guy who’s going around saying, I’m going to have a very large tax cut.
JEFFREY BROWN: So, what did that mean, do you think?
JARED BERNSTEIN: Well, what it means is that Mitt Romney makes a real distinction between cuts in tax rates and cuts in tax liabilities, cuts in what you actually have to pay the IRS.
What he’s saying is, to the wealthy folks, we will cut your rates, but we will raise your deductions so your taxes will be the same. And, by the way, I think there’s a lot of probably wealthy people who don’t really want to hear that.
JEFFREY BROWN: What did you hear?
DOUGLAS HOLTZ-EAKIN: I think the very simple fact is that we know a very tiny fraction of Americans at the top 5 percent pay the vast majority of income taxes, over 60 percent at this point.
And what he’s saying is, that’s not going to change and that that notion of fairness will be enforced.
JEFFREY BROWN: What about the president’s claim, another thing, saying that he has a specific plan of cutting the $4 trillion from the deficit, $2.50 in cuts for every $1 in revenues? Let me ask your thoughts on…
DOUGLAS HOLTZ-EAKIN: This is claim that has been repeatedly debunked by every one of the fact-check organizations that follows these things.
The president relies on an enormous number of budget gimmicks to get even close to that. He takes credit for the $1.2 trillion that the Congress has already got on the books in the Budget Control Act. He takes credit for the spending that we’re not going to have in Iraq and Afghanistan.
He creates magic free spending to pay Medicare doctors, for Pell Grants and for emergencies and says, no, that’s not new spending and ignore that.
So once you strip out the sort of gimmicks, you don’t have anywhere near close to $4 trillion. You’re down to $600 billion.
JEFFREY BROWN: That’s the critique I have heard, is that he’s using numbers that…
JARED BERNSTEIN: Well, we do have — there’s part of that I agree with, but we have disagreements on the facts. The $4 trillion doesn’t include war savings. It just doesn’t count war savings.
It does include $1.5 trillion that had been enacted already. So I agree with that. And I think that’s fine. I think people don’t really recognize that this Congress has actually cut spending. Over 10 years, it’s actually $1.7 trillion. I think that’s OK.
The president has been specific on a tax increase. And I actually give him a lot of credit for this. A minute ago, we’re saying Mitt Romney needs to get more specific. The president has said that I will allow the Bush tax cuts to expire for the top 2 percent of taxpayers.
He’s taken a tremendous amount of heat for that, but he’s on record saying it. And that is how he accomplishes these savings.
DOUGLAS HOLTZ-EAKIN: I have a lot less sympathy for him trotting out $4 trillion plans for deficit reduction, when he — the actual deficits are a trillion dollars. He promised to cut in it in half, and he didn’t.
And if you open up the budget of the United States, under his policies, the debt explodes. You can see it on page 52 of their analysis of the long-term budget outlook.
He said last night that budgets are about making choices. Having a budget that chooses to have the debt explode and endanger our children is a poor choice.
JARED BERNSTEIN: I just think that’s misleading, because if you actually look at the CBO scoring of the president’s budget, he achieves a stable budget path within the 10-year budget window. So, I just — again, we have a factual disagreement.
DOUGLAS HOLTZ-EAKIN: I said if you look at the long-term budget outlook, the debt explodes.
DOUGLAS HOLTZ-EAKIN: So year 11 matters. My children are not yet so old that I don’t care about 11 years from now.
JARED BERNSTEIN: Well, I think let’s deal with the first decade.
JEFFREY BROWN: All right, all right, we have cleared up everything.
JEFFREY BROWN: Thank you so much. Douglas Holtz-Eakin, Jared Bernstein, thanks.