Economist: Romney Tax Plan Increases Growth–Not Middle Class Taxes

Economist: Romney Tax Plan Increases Growth–Not Middle Class Taxes

The Obama/Biden campaign has been running around the country waving a false analysis by the Tax Policy Center that claims the Romney/Ryan tax reform plan will cut taxes for the rich while increasing taxes on the middle class. A new study–one that actually looks at the details of the Romney/Ryan plan, and allows for economic growth–shows the opposite: the Romney/Ryan plan creates jobs without raising middle class taxes.

The Tax Policy Center analysis seemed made-to-order for the Obama/Biden campaign, largely because it was plainly wrong. As the Wall Street Journal pointed out a month ago, it did not even purport to analyze the actual Romney/Ryan plan, but one that it essentially made up–by its own admission. The result, the Journal said, was “a highly ideological tract based on false assumptions, incomplete data and dishonest analysis.”

Breitbart News focused on two other flaws in the Tax Policy Center analysis: one, allegations of partisan bias; and two, the fact that the study had no dynamic component–i.e. it assumed that lower tax rates would have no effect on economic growth. The entire point of the lower taxes in the Romney/Ryan plan was to create growth and jobs that would then yield higher revenues, enabling the whole reform to be revenue-neutral.

New analysis, by Harvey Rosen of Princeton University, gets rid of the Tax Policy Center’s static assumptions and concludes that the Romney/Ryan plan can indeed be revenue neutral without raising anyone’s taxes:

Relatively little has been said about the possible effects of the Romney proposal on economic growth. This is curious because increasing growth is the motivation for the proposal in the first place.

In this paper, I analyze the Romney proposal taking into account the additional income that might be generated by economic growth. The main conclusion is that under plausible assumptions, a proposal along the lines suggested by Governor Romney can both be revenue neutral and keep the net tax burden on high-income individuals about the same. That is, an increase in the tax burden on lower and middle income individuals is not required in order to make the overall plan revenue neutral.

Do not expect the media to report this with anything like the same enthusiasm it reported the false conclusions of the Tax Policy Center. If the Romney campaign wants this message to get out, it will have to do so itself.

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