Can Republicans Avoid the Romney Tax Trap?
MAY 19, 2015

In 2012, Mitt Romney made a promise that would come back to haunt him: that he could cut federal income tax rates by 20 percent across the board; eliminate enough tax deductions and credits to do this without increasing the deficit; and not raise taxes on people making less than $200,000.

The problem for Mr. Romney was that the math didn’t work. Popular wisdom holds that the income tax code is full of deductions for the wealthy, but as of 2012, people making over $200,000 took deductions equal to just 15.7 percent of their adjusted gross income. As a result, there wasn’t enough money to balance Mr. Romney’s proposed tax cuts just by curtailing high earners’ deductions.

Mr. Romney released the tax plan in February 2012 to help himself in the Republican primary, in which several of his opponents were running on deep tax-cut plans. The plan was less helpful in the general election, when President Obama accused Mr. Romney of proposing to cut taxes on the rich at the expense of the middle class.

There are a few ways the 2016 Republican candidates can avoid the Romney middle-class tax trap. They can break with party tradition and abandon the position that there should be significant tax-rate cuts for top earners. They can forthrightly defend the idea that people with low and middle incomes should pay more. They can abandon the promise of revenue neutrality — so a tax cut for the rich does not need to be offset by tax increases elsewhere. They can be as vague as possible.

So far, we have seen contenders use all these options except the first.

Five candidates or potential candidates have backed flat taxes: Ted Cruz, Rand Paul and Ben Carson have called for them in the current campaign, and Rick Perry supported one in 2012. Mike Huckabee ran for president in 2008 as an advocate of a single-rate sales tax to replace the income tax. In general, these candidates have floated rates in the teens, though Mr. Carson has said he might set a rate as low as 10 percent.

What would a flat tax mean for the middle class? That depends what deductions are allowed. A flat tax could be devised to give a tax cut to many middle-income households through a large personal exemption, even if they currently pay an effective tax rate lower than the proposed single rate.

However, a single-rate tax under 20 percent will necessarily mean a large tax cut for people with high incomes, since the current top federal income tax rate is 39.6 percent on married couples earning over $464,850. Such a tax must do one of two things: raise the tax burden on the middle class (for example, by offering a very limited personal exemption) or significantly reduce the overall tax collected by the federal government.

In general, flat-tax proponents try to elide this problem. But Mr. Carson has been open about the fact that his plan would raise taxes on some lower earners. He said on “Fox News Sunday” this month that it was “condescending” to argue poor people could not afford to pay the same tax rate as rich people.

While flat taxes have long been a favorite of the conservative wing of the Republican party, establishment candidates have preferred to tinker with the existing system of graduated tax rates so as not to raise anybody’s taxes. This is the tradition of George W. Bush, who cut income tax rates across the board and expanded the child tax credit.

But President Bush did so when the federal budget looked flush and it was politically possible to offer a deficit-increasing tax cut. Budget deficits have required Republican candidates to propose at least partial offsets to their tax rate cuts, which led to Mr. Romney’s problem of having to explain whose taxes he would raise.

Gov. Chris Christie, who is not yet a candidate but sometimes acts like one, gave a speech in New Hampshire last week in which he called for a tax plan similar to the one Mr. Romney ran on three years ago. He was, however, looser with the specifications, which could help him avoid the accusation of raising taxes.

Mr. Christie eased off Mr. Romney’s revenue neutrality pledge, saying his plan would not “materially increase the deficit” after combining with other measures. That would leave himself room to pay for tax cuts with spending cuts, allow for a small deficit increase and avoid the implication that anyone’s taxes would have to go up.

Similarly, Senator Marco Rubio has endorsed a plan that tosses aside any commitment to revenue neutrality. It would reduce revenue by trillions of dollars over a decade by cutting rates, abolishing taxes on capital gains and dividends and creating a new tax preference for business owners. Mr. Rubio told reporters in March, “I’ve never believed that tax reform by itself should pay for itself.”

Scott Walker, the governor of Wisconsin who has yet to declare himself a candidate, has not spoken out in detail on federal tax issues. In March, The Weekly Standard quoted him saying: “I like the idea of a more fair and simple tax code.”

The one who seems to have taken the Romney tax trap lesson most to heart is Jeb Bush, who has so far said nothing specific about what he would do on taxes.

“I think we need to cut taxes and reform our code to create economic prosperity,” he said in an interview with National Review’s Rich Lowry in April. Unusually for a Republican, he has said he will not sign the Americans for Tax Reform pledge not to raise taxes. (In 2012, all major Republican presidential candidates signed the pledge except Jon Huntsman.) He has responded to specific questions about what he would do on taxes as president by talking up his tax-cutting record as governor of Florida, not by making any promises.

Given his family history with “Read my lips, no new taxes,” it’s no surprise Mr. Bush would be hesitant about tax promises. The question is whether G.O.P. primary voters, used to promises of deep tax cuts, yet desirous of higher military spending and wary of old-age entitlement cuts, will allow a candidate to dance around their unreasonable expectations — or whether they will push their nominee into promises that prove unpopular in a general election.

http://www.nytimes.com/2015/05/19/upshot/can-republicans-avoid-the-romney-tax-trap.html?hpw&rref=upshot&action=click&pgtype=Homepage&module=well-region&region=bottom-well&WT.nav=bottom-well&abt=0002&abg=1