Thursday, October 11, 2012

Why the "tax cut lie" is Obama's, not Romney's...

The USA widget company has some serious problems. They've been running in the red for a couple of years, and they can't seem to get their costs under control. They've got a decent product, but their price list is quite complex, fairly high in nominal terms, with various discounts for volume purchase, and other things, and their market share is slipping.

Two of their Vice Presidents are the likeliest candidates to replace the outgoing CEO. One of them, VP Mitt, has a plan to increase market share by cutting prices across the board, and reducing or removing some of the deductions and sales bonuses that distort the pricing. He believes that these changes will increase market share, increase product moved, and be at least revenue neutral, and in the best case, better than that.

VP Barry disagrees, so he's tells everyone that he sees that VP Mitt has a plan to cut company revenues by $5 million. (He gets that $5 million number by looking at the price reduction, ignoring the removal of the deductions, assuming that the reduction in sales price results in no additional sales, and then multiplying by 10 to get a 10 year cost.) And sure enough, he assigns a member of his staff to do an analysis, and it "proves" that Mitt's plan results in $5 million of lost revenue. So he tells everyone about the plan, asking "how can we close our budget gap if we give away $5 million, mostly to our biggest, wealthiest customers?"

VP Mitt looks at the analysis, and has several other analysts address it. They all agree that the analysis ignores important facts, and that the plan Mitt has proposed is not only possible, but likely. 

The two candidates get up in front of the shareholders at the annual meeting, and three times, VP Barry accuses VP Mitt of planning a $5 million giveaway to the biggest customers. And three times, VP Mitt corrects him.

And yet the next day, VP Barry goes out to members of the board of directors, and not only repeats the $5 million analysis, he accused VP Mitt of lying about it, and of disowning his own plan during the shareholders meeting.

So who is the liar here?

That's what's happening in the Presidential campaign. Three times, during the first presidential debate, President Obama accused Governor Romney of supporting a "$5 Trillion tax cut." And three times, Governor Romney rebutted it.
BO: Governor Romney’s central economic plan calls for a $5 trillion tax cut...
MR: I don’t have a $5 trillion tax cut. I don’t have a tax cut of a scale that you’re talking about. My view is that we ought to provide tax relief to people in the middle class. But I’m not going to reduce the share of taxes paid by high-income people.


BO: Governor Romney’s proposal that he has been promoting for 18 months calls for a $5 trillion tax cut...
MR: if the tax plan he described were a tax plan I was asked to support, I’d say absolutely not. I’m not looking for a $5 trillion tax cut. What I’ve said is I won’t put in place a tax cut that adds to the deficit.


BO: If you believe that we can cut taxes by $5 trillion and ... somehow you will not end up picking up the tab, then Governor Romney’s plan may work for you.
MR: I’m not in favor of a $5 trillion tax cut. That’s not my plan. My plan is not to put in place any tax cut that will add to the deficit...So you may keep referring to it as a $5 trillion tax cut, but that’s not my plan.
In the eyes of President Obama's supporters, both inside and outside of the media, this makes Governor Romney a liar. And to cheers of acclaim, the President went out on the campaign trail the next day to continue pushing both the tax cut number and the "Romney lied" meme.
“We had our first debate last night,” Obama said at an outdoor event at Sloan’s Lake Park in Denver on Thursday. “When I got onto the stage I met this very spirited fellow who claimed to be Mitt Romney. But it couldn’t have been Mitt Romney, because the real Mitt Romney has been running around the country all year promising $5 trillion in tax cuts for the wealthy. The fellow onstage last night said he didn’t know anything about that.”
That?   That's a lie.


Oh, that last part is a lie, too.

Different analyses yield different results. And it's true that there is an analysis, from a partisan liberal source, suggesting that Governor Romney cannot put together a tax plan that meets the criteria he claims his plan will meet. But there are other analyses pointing out the holes in that one.  What we've got here is two different potential projections for 10 year effects of a plan that's not fully defined yet.  And one candidate (Obama) is calling the other (Romney) a liar because he disagrees with his projection. 

And the two candidates are talking in different terms, as well. 
  • Governor Romney is proposing a tax cut, defined as a reduction in tax rates.  
  • President Obama is talking about a tax cut, defined as a reduction in the revenues collected by the Federal government. 
The former may lead to the latter, but it is by no means certain.  It is Governor Romney's position that reducing rates while eliminating deductions will broaden the tax base and spur growth, resulting in no reduction of revenue.  It is President Obama's position that any reduction in rates has only one effect - lost revenues.  No broadening or deductions or growth to "offset," just lost revenue.

And it isn't enough for him or his supporters to disagree with the analysis.  No, they are so convinced of their position that Romney's not only wrong, he's lying.

Well, someone's been lying on this issue.  A lot.

And it's not Governor Romney.

Here's one thing that is clearly true.  It takes years to determine the end result of any change in tax rates or deductions.  And even hindsight is not 20/20, because nothing happens in a vacuum.  If Romney is elected and signs a new tax package in to law, we'll be able to say, with some confidence, what federal revenues actually are.  What we'll never be able to say with certainty, is what they would have been in different circumstances.

Note that, when challenged, even Obama's campaign admits that the "five trillion dollar tax cut" is a lie.
Well, stipulated, it won't be near five trillion dollars...
- Obama campaign spokesman Stephanie Cutter

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