Paul Ryan and the Tax Man

In a way, it’s probably good that Joe Wilson wasn’t sitting up front at the Vice Presidential debate this week nor, more importantly, at the various political roundtables analyzing it ever since. Had he been, the congressman would probably have gone hoarse by now from all of the opportunities to stand up and shout, “You lie!” And that has certainly been the overriding theme since the opening moments of the battle between Paul Ryan and Joe Biden. Both sides are claiming that the candidates’ performances were overshadowed by the “fact” that each of them were lying over and over and over. But among all the bones of contention, one of the most fiercely fought has been the exchange surrounding the proposed GOP tax plan put forward by Mitt Romney.

Over at The Corner, Avik Roy digs into a variety of You Lie themes, but highlights the following when it comes to the tax question.

Biden repeated the long-debunked claim that Romney seeks a “$5 trillion tax cut,” when in fact Romney’s tax proposal is designed to be revenue-neutral. Furthermore, Biden claimed that there is a study from AEI supporting his claims. “The American Enterprise Institute study [says that] taxes will go up on the middle class,” claimed Biden. There is no such study. Two AEI scholars, Matt Jensen and Alex Brill, have in fact made the opposite case.

Unfortunately, it’s exactly these sorts of arguments which invite analysts involved in the debate, such as Bloomber’s Josh Barrow, to dive in with their own reading of the tea leaves.

Mitt Romney’s campaign says I’m full of it. I said Romney’s tax plan is mathematically impossible: he can’t simultaneously keep his pledges to cut tax rates 20 percent and repeal the estate tax and alternative minimum tax; broaden the tax base enough to avoid growing the deficit; and not raise taxes on the middle class. They say they have six independent studies — six! — that “have confirmed the soundness of the Governor’s tax plan,” and so I should stop whining. Let’s take a tour of those studies and see how they measure up.

The Romney campaign sent over a list of the studies, but they are perhaps more accurately described as “analyses,” since four of them are blog posts or op-eds. I’m not hating — I blog for a living — but I don’t generally describe my posts as “studies.”

None of the analyses do what Romney’s campaign says: show that his tax plan is sound.

Being one of those annoying people who actually follows the links in stories like these to try to understand the underlying facts, I was only able to conclude that this entire argument is one big, hot mess. Going through the sources provided in Avik Roy’s piece wasn’t exactly a fool proof plan. Matt Jensen’s article doesn’t actually come out and say that the math works on Romney’s plan, but rather envisions a different set of analytical criteria where it might work. These include redefining “the wealthy” down in income by 25% for starters. Alex Brill’s piece is more strident in claiming that the math could work, but the lion’s share of the argument rests on what is effectively the trickle-down theory; when the taxes are cut, the economy is stimulated to to the point where increased revenue from growing economic activity offsets the cuts. He also makes the valid point that the study under discussion didn’t include the taxes in Obamacare as part of the baseline, which tilts the scales in Romney’s direction.

Barrow’s defense acknowledges the latter while mostly ignoring the former, but there may be a reason for that. It seems that many of the people seeking answers on this issue are looking for the cold, hard math: revenues in one column and costs in the other. Basing answers on projections which rely on our ability to predict how hundreds of millions of people will react to any given set of stimuli muddies the waters before we get out of the gate.

I think both sides are missing one important aspect, however, which still relies on behavioral prediction, but should act as a far better argument in favor of the Romney – Ryan argument. Asking us to accept what will happen under a Romney tax plan relies on said tax plan actually being enacted. And a President Romney could not put such a plan in place quickly nor single handed. Congress will have control of that process, and we all know how lightning fast and efficiently that crack team works.

No, the one thing which could make this math work even before any changes are made to the tax code is the simple fact of Mitt Romney being declared the winner of the election next month. Yes, I understand that this argument sounds just like claims that the election of Barack Obama would slow the rise of the oceans, etc. etc. etc. But there’s a difference here. The relative sea level of the planet doesn’t have access to the internet or cable news and acts independently of current events. But businesses around the country have, beyond question, been holding their collective breath in response to the advent of regulatory burdens and the coming toll of Obamacare, leading to stagnation in employment and economic growth. Taking away that threat – which will be the implication of changing White House occupants – could absolutely bring a bunch of capital in off the sideline. And the energy industry – which has been effectively stymied in some sectors – could, by most projections, start putting millions of more people to work in a matter of months once work on the pipeline gets into full gear and the issuing of more exploration permits is on the horizon. Those two factors alone could produce the type of economic growth which would already be more quickly filing government coffers before the tax reform debate even begins.

That’s the sort of change which will make enacting these types of comprehensive tax reform possible. If you’re arguing from a position of strength, with unemployment falling and more cash coming in to the treasury, it’s a heck of a lot easier than if you have to rely on murky projections of what “might happen” later. Paul Ryan didn’t do himself any favors when he told a reporter that he didn’t have time to go through the math of the tax plan. But I think his argument could be clarified and strengthened by highlighting the effect on the economy described here. That’s why this is the argument which I believe the pundits should be having this weekend, rather than tidying up sums in columns off the AEI study.