Thursday, October 4, 2012

Pundits Revel in Bias and Inattentiveness

Quick hit here. After the debate, many bloggers wrote how Romney got away with not being specific with which deductions he would eliminate to make his rate cut be revenue neutral.

Well he just came out and said he wants to limit the total amount of deductions, which essentially gives taxpayers a choice of how they spend their money. You can still, for example, deduct mortgage interest (up to a certain amount), but that means you wouldn't be able to deduct for improvements to your home office. Or vice-versa.

That effectively flattens the tax code and does precisely what Mitt Romney says he'd do, which is to make his rate cuts (more or less) revenue neutral. Only a small portion of households actually itemize deductions (because for most families, the standard deduction is greater than the amount they can deduct otherwise) and an even smaller portion of households deduct a ton on their returns (the richest households).

This keeps in place our progressive income tax system while limiting the tricks that accountants can use to minimize a high income household's tax bill.


  1. it doesn't pay for the tax cuts he proposes though...

    1. If economic growth occurs due to the lightening of the tax burden, then more tax revenues will be received. Whether the growth happens is the unknown, but it is a realistic possibility.

  2. thats what dynamic scoring is for, and it still paints the same picture. Even plans which use assumptions that are extremely favorable to Romney (basically implausible) still can't tease out the numbers without a tax increase on middle income people to pay for the top. (maybe they exist, but I haven't seen them)

    and when you stop to think about it, if you have an activist central bank, the impact of fiscal policy on the AD curve will be contingent on the central banks reaction function. So it may or it may not be stimulative, we just don't know. (im assuming it isn't revenue nuetral)

    That leaves us with on the effects on AS, which I don't see being very stimulative.