This will be something of a long one, but I have arrived at a conclusion that must be shared with the world. Or at least with Facebook and Goose.
From a libertarian position, both the president and his (main) challenger believe in a myriad of policies with which no sane person should ever agree, ranging from protectionism to prohibitionism to the executive’s warmaking powers to extrajudicial killing by executive order, but when they stop agreeing about how wonderful all the foreign and domestic blood and gore is and actually disagree on something, Romney is usually right.
I have thought this for some time, but what prompts my public declaration is the left’s blather over a lack of detail in Romney’s tax plan. Dearest reader, public finance is not all that difficult to understand. If a suggestion is made that tax rates be lowered and that tax deductions be eliminated to make tax reform revenue neutral, you don’t ask for further “details.” Those are the details. The rich are taxed at X%. They actually pay closer to Y% because of deductions. Change the tax rate to Y% and disallow them from having any deductions. Tax rates are now lowered without lowering revenues by a bill that could be written in one paragraph. Quid erat demonstratum.
You cannot debate with such people, and I will go so far as to say that I am entitled not to be governed by them.
The only potential hitch is that a deduction phaseout would need to be implemented after a certain threshold of deductions is reached if it is decided to keep the existing structure for the bottom 90% of the country, but that’s a high school math exercise once the powers that be finally reveal to us what the definition is of this “middle class” of which we hear so often, such that we know which threshold to use.
The more sophisticated critique has focused on the supposed mathematical impossibility of crafting a revenue-neutral tax reform bill with Romney’s numbers. Romney would lower tax rates further than Democrats argue he can balance with cuts to deductions, but their analysis is based on the conceit that marginal tax rates don’t affect income earned. Present income is merely multiplied by the proposed tax rate, and the product comes out too low, they say. But cutting tax rates while eliminating deductions is a textbook example of a tax reform that will increase taxable income. For the long reason, see here: http://econlog.econlib.org/archives/2012/10/romney_tax_cuts.html . For the short reason: A high burden of tax makes you poorer. A poorer person has to work harder to recoup income the government takes from him. Thus he wants to work more and take less leisure time. This is called the income effect. But a high tax rate means that an hour’s work produces less after-tax money than it used to, making work less valuable relative to leisure time. Thus he wants to work less and take more leisure time. This is called the substitution effect. It’s debatable to what extent these two forces cancel each other out in a tax raise or tax cut designed to change the burden of taxation. But a tax cut designed to cut tax rates and leave tax burden alone only increases the value of work relative to leisure. Thus more people will choose work over leisure, revenues will be significantly higher than would have been expected using a static tax analysis, and any revenue neutral tax reform proposition must lower tax rates significantly below the level which static-taxers require if their math is to add up.
Thus we get to the heart of the matter. I’ve been following tax reform proposals from the wonks on the right of the debate for years, and I fully expect that Paul Ryan of all people in Washington has been doing the same. Tax reform has always been premised on the idea that deductions are indefensible and must be eliminated. They masquerade as tax cuts which are supposedly good for the economy – indeed, Obama has run on his claim to have cut taxes for nearly everyone in the country, by which he means he’s created or maintained all these deductions – but they harm us dearly because they consist of a revenue-negative income effect which does nothing to actually soften the revenue negative-substitution effect caused by the high tax rates from which the deductions are in the first place deducted. If Ryan knows this it seems obvious that the Republicans’ plans to reform the tax structure began with the goal of eliminating deductions as an end in itself, but wanting to pass a plan that would be in all other ways outcome-neutral, proposed lower tax rates which would not modify the actually dollar amount paid in to the government after accounting for a stronger economy once the deadweight of deductions is cut away. But the left is perpetually deluded by visions of class warfare, and compulsively accuses its opponents not merely of being wrong, but evil, for disagreeing with it. Thus a fairly mundane tax reform proposal based on mainstream economic thought is, like so many similar proposals in the past, being recast as merely an attempt to lower the taxes* of the richest in society, as if that, and not a century of fairly well accepted public finance, were the driving force behind all but social-democratic tax proposals. You cannot debate with such people, and I will go so far as to say that I am entitled not to be governed by them.
Thus, I throw my endorsement once again behind Not Obama.
*Can we dispense with imprecise language like this? Taxation can be measured in at least four separate ways: the percentage of one’s dollar taken, the proportion of one’s income one is left with after taxation (these are different, and if you yet do not see how, I have failed you as a writer), the quantity of one’s dollars taken, and the percentage of government revenues provided from one’s income percentile. These four indicators seldom all move in the same direction under a given policy, which means every politician can (dis)honestly claim to have cut taxes, or claim his opponent has raised them. Bush could just as legitimately have claimed he raised taxes on the 1%** because both dollars raised and percentage of revenue paid by the top 1% rose to all time highs under his presidency.
**We need to dispense with imprecise language like this too, but that is a matter for an entirely different piece.