Lawrence Kudlow’s Denial of Reality

Sunday morning brings the Sunday paper, and in my little part of Pennsyltucky that means I get to read yet another conservative screed by whatever random conservative pundit the paper decides to publish.  This week the opinion page is home to The National Review’s Lawrence Kudlow, who completely ignores reality while urging Mitt Romney to do the same.  Let’s take just a quick look:

Basically, his 20 percent tax-reduction plan takes the top rate down from 35 to 28 percent. These are the big investors who help fund new businesses and job creation. And yes, as liberals always point out, their take-home pay will go up the most, by roughly $70,000 yearly.

But politically, Romney can speak directly to the middle class and show them how much their take-home pay will go up, too.

For example, a $70,000 middle-class family whose tax bracket falls from 15 to 12 percent will see a roughly $2,100 increase in take-home pay. That’s not nothing. Mortgage. Tuition. Car payments. On and on.

A married couple earning $143,000 whose tax rate under Romney drops from 25 to 20 percent will keep roughly $7,100 more in take-home pay. That’s good money. Or to use Obama’s middle-class benchmark, a married couple earning $220,000 a year whose rate drops from 28 to 22 percent will save over $12,000. That’s a big number.

That very term, “take-home pay,” has a middle-class feel to it. It’s something folks sitting around the kitchen table understand. Middle-class folks know what take-home pay means to their families.

So what I’m suggesting is that Romney puts together specific examples of lower family tax rates and higher take-home pay. Specific examples. Put all those Harvard PhDs in the Boston headquarters to work. They can do it to the penny. I’m just roughing it out here in broad strokes, using work from my friends Jim Pethokoukis and Douglas Holtz-Eakin.

It’s really that simple. Talk up tax cuts and connect them to Main Street families in terms of the after-tax dollars and cents they understand. Higher take-home pay. More financial security. More jobs. Repeat these over and over. And then add meat to the bones.

And what delicious meat would be added to those bones?

For example, tell middle-class earners that their tax deductions will not be eliminated, or even limited. Reassure them. Take the Obama argument away: more take-home pay and no end to the child tax credit or other significant deductions.

Wait a second.  Something there doesn’t look quite right.

For example, tell middle-class earners that their tax deductions will not be eliminated, or even limited. Reassure them. Take the Obama argument away: more take-home pay and no end to the child tax credit or other significant deductions.

So lie to them?

Seriously, I don’t feel the need to argue against the theory that cutting taxes on the rich “trickles down” or benefits anyone other than the rich people who get their taxes cut.  I think history provides enough of a debunking of that.  And I have no desire to argue against cutting taxes on the middle class, because I think taxes on the middle class should be cut. (And paid for by raising taxes on the rich, but I’ll save that argument for another day.)  But no matter what smoke Kudlow tries to blow up the rectum of American voters, Mitt’s tax plan can not do what Lawrence is telling Romney to tell voters it does.

The Tax Policy Center, an independent group made up of tax experts who served in the Reagan, Bush (the first), and Clinton administrations that provides unbiased analysis of tax issues, has dissected the Romney plan and found that even under the most generous assumptions, the numbers just don’t add up.  Erza Klein’s Wonkblog has a great guide to the report, criticism of the report, and Mitt’s plan in general.  Shall we take a peek?

The study started by noting that Mitt Romney has stated he wants his tax reforms to achieve (at least) five things:

  1. A 20 percent reduction in marginal personal income tax rates.
  2. Elimination of the estate tax.
  3. Elimination of the Alternative Minimum Tax.
  4. Enough base-broadening, through the elimination of tax expenditures, to fully pay for policies 1 through 3.
  5. Preservation of incentives for saving and investment.

The paper then demonstrated that you can’t do 1-5 without raising taxes on people making under $200,000 a year.

Conservatives howled over the Tax Policy Center’s findings and several published attempted debunkings.  All failed.  The TPC’s findings hold up to scrutiny.

But reality is actually worse for Mitt’s plan than stated in the TPC’s report.  As Dylan Matthews says at the Wonkblog:

It’s worth emphasizing just how low a bar the Romney plan is being asked to clear. The question the Tax Policy Center asked was whether it’s mathematicallypossible to do all the things Romney says he wants to do. But even if it were mathematically possible, it may not be politically possible or substantively wise.All of the above analyses assume that Romney totally eliminates the charitable deduction, mortgage-interest deduction, all education tax breaks, all state and local tax deductions the employer-provided health care exemption, all Health Savings Account and medical expenses deductions, and more for people making over $200,000. Even if TPC is wrong, you’d probably have to limit them for people making under that amount too, so middle-class people pay the same amount when you take into account the rate cuts.

These are enormous changes. Eliminating the charitable deduction for the rich could effectively wipe out funding for thousands of charitable, artistic, and educational institutions. Small theaters could shut down. Anti-malaria groups would buy fewer bednets. Private colleges would lose donations, and hike up tuition to make up the difference, even as tuition deductions and credits are eliminated. In 2009, when President Obama proposed simply limiting the charitable deduction at the to end, Martin Feldstein, author of the first study trying to show Romney’s plan could work, wrote, “in effect, the change would be a tax on the charities, reducing their receipts by a dollar for every dollar of extra revenue the government collects. It is hard to imagine a rationale for taxing schools, hospitals, medical research budgets and arts organizations in this way.”

Eliminating the mortgage-interest deduction would upend the housing sector, reducing demand to buy dramatically and shifting the sector toward renting. Eliminating the employer health exemption could mark the beginning of the end of the employer-based health system as we know it.\

But hey, the rich will pay lower taxes, so all’s good.

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